Sterling Falls, Gilt Yields Rise as U.K.'s Starmer Could Be Set to Resign

By Renae Dyer and Miriam Mukuru

Sterling flirted with 2026 lows against the dollar while yields on U.K. government bonds edged higher as U.K. Prime Minister Keir Starmer was expected to announce his departure on Monday.

Starmer could set out a timetable for his departure following pressure from his Labour lawmakers to make way for Andy Burnham to replace him, media reports said. Burnham secured a seat in parliament by winning a special election last week, creating a path for him to challenge Starmer.

Sterling fell 0.4% to $1.3193 in early European trade, approaching its 2026 low of $1.3156 reached in March, according to LSEG data. The euro rose 0.2% to 0.8674 pounds, having hit a one-month high of 0.8687 overnight.

Ten-year gilt yields rose 1.4 basis points to last trade at 4.854%, Tradeweb data showed.

Some investors worry that Burnham could worsen the public finances by favoring increased public spending, higher taxes and possibly more government debt.

"Fear is that Burnham policies are left-leaning and if the new treasury chief is not credible, it would raise concerns over deficits and borrowing," Jefferies economist Mohit Kumar said in a note.

Burnham has said that he would respect fiscal rules but it isn't obvious where the money for any additional spending would come from, he said.

Starmer has faced growing pressure to step down after Labour's bruising defeat in local elections in May.

"Andy Burnham is almost certain to become the U.K.'s next prime minister, but the timeline remains cloudy," Pantheon Macroeconomics economists said in a note.

Gilt yields are likely to remain elevated due to political and fiscal concerns, the economists said. "Markets probably need a clearer timeline before completing the adjustment up in yields."

Any new leader will be confronted by the current fiscal challenges plaguing the country, Capital Economics' head of markets Asia Pacific, Thomas Mathews, said in a note.

Data on Friday showed U.K. public sector borrowing came in at 23.3 billion pounds ($30.8 billion) in May, 30% higher than a year earlier, and above the Office for Budget Responsibility forecast.

"There is little room to increase spending without risking a backlash from the bond market," Mathews said.

Write to Renae Dyer at renae.dyer@wsj.com and Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

June 22, 2026 04:50 ET (08:50 GMT)