Neil Wilson, Saxo UK investor strategist, says the pound is under pressure and gilt yields have leapt after almost 80 Labour MPs called on Prime Minister Keir Starmer to step down, making a resignation or a timed exit increasingly likely.
He argues markets hate uncertainty over who runs a government, and that a likely leftward leadership shift would raise fiscal-spending risk and the odds of inflation becoming stickier, increasing political, fiscal and inflationary risks for gilts.
Market signals backing his view include the 10-year gilt jumping about 10 basis points to clear 5.10% at the open and the 30-year up 11bps to about 5.8%, GBPUSD cracking the 20-day SMA at 1.3540 with 1.34 and a longer-term retest of 1.30 possible, Louise Haigh calling for a fiscal-framework reset, and Brent rising roughly 2% above $106.
"We are expecting volatility in gilts and sterling to continue," Wilson said, with this morning's cabinet meeting the immediate test of whether the political blow-up becomes a prolonged market story.
