ING said Andy Burnham\u2019s by-election win has strengthened expectations that he could become UK Prime Minister, with betting markets pricing a handover by the end of the summer. The scenario set out includes potential cabinet resignations intended to accelerate a transition from Keir Starmer, although a longer leadership contest remains an alternative.<\/p>\n
The pound has shown no political risk premium over the past month, a pricing pattern that implies markets are comfortable that Burnham\u2019s fiscal plans would not unsettle the gilt market. Even so, ING framed fiscal headlines as a potential upside risk to its generally bullish EUR\/GBP view, arguing that GBP and gilts have had a low tolerance for negative budget-related news since 2022. The bank\u2019s central case rests on its expectation of no further Bank of England hikes, reinforced by what it described as an uneventful meeting yesterday.<\/p>\n
We see Andy Burnham’s decisive by-election win as paving the way for a leadership transition by late summer. Betting markets are reflecting this, with current odds implying an over 80% chance of a new Prime Minister before the autumn. This high conviction suggests we should position for a period of political change.<\/p>\n
Right now, the pound shows little sign of stress, with implied volatility on three-month options holding near a one-year low of 6.2%. This tells us the market believes a Burnham government will not pursue disruptive fiscal policies. We feel this confidence could be misplaced, presenting an opportunity for traders.<\/p>\n
Our main view is to favor the euro against the pound, anticipating a move towards 0.8800 in EUR\/GBP. The Bank of England is firmly on hold, reinforced by the latest CPI inflation figure of 2.1% and sluggish Q1 GDP growth of just 0.1%. This policy stance leaves sterling vulnerable, especially as political headlines emerge.<\/p>\n
The memory of the gilt market crisis in autumn 2022 means any unexpected fiscal announcements could cause a sharp reaction. We are therefore buying cheap, out-of-the-money EUR\/GBP call options with August and September expiries. This strategy offers a low-cost way to profit from a sudden sterling drop if political risk is repriced into the market.<\/p>\n","protected":false},"excerpt":{"rendered":"
ING says Burnham\u2019s by-election win boosts PM odds; pound calm, but fiscal headlines could hit sterling.<\/p>\n","protected":false},"author":87,"featured_media":52989,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-52897","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t