UK PM Burnham’s fiscal flexibility pledge and Healey’s appointment as Chancellor spark Gilt underperformance but limited GBP downside.
The British Pound saw limited initial weakness before recovering as UK Prime Minister Andy Burnham signaled flexibility on fiscal rules and named John Healey as Chancellor. The move triggered a selloff in 10-year Gilts, which underperformed other European bonds, though sterling later stabilized on stronger-than-expected jobs data.
Gilts faced pressure after Burnham’s comments, with markets reacting to the potential for looser fiscal policy. Sterling’s recovery was aided by robust employment figures, but analysts warn of lingering vulnerabilities for GBP, which had recently outperformed. EUR/GBP remains undervalued, with risks skewed to the upside.
Healey’s appointment is seen as politically aligned with Burnham, reducing expectations of a sharp policy shift. The bond market’s response will be key to sterling’s ability to regain momentum, though the initial reaction suggests limited concern over Healey’s economic stance.