ING’s Francesco Pesole highlights that Andy Burnham’s by-election win paves his way to become UK Prime Minister, with betting markets expecting a transition by late summer. The absence of a political risk premium in Pound assets suggests investors see limited fiscal disruption. ING maintains a generally bullish stance on EUR/GBP, citing no further Bank of England hikes while flagging fiscal headlines as an upside risk.

Burnham path to power and Pound pricing

"In the coming days, we might already see some cabinet resignations aimed at pressuring PM Keir Starmer to step down and speed up a transition to Burnham. The alternative is a lengthier leadership challenge. Anyway, betting markets – and likely the investor community – have a very high conviction that Burnham will become PM by the end of the summer."

"The lack of any political risk premium in the pound over the past month suggests markets have grown increasingly assured that Burnham won’t upset the gilt market with his fiscal plans. Still, the bar has been low since 2022 for GBP and gilts to react negatively to fiscal headlines, and we are adding that as an upside risk in our generally bullish view on EUR/GBP. Still, our view rests primarily on our call for no Bank of England hikes, with yesterday’s rather uneventful meeting reinforcing our conviction."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)