OCBC strategists Sim Moh Siong and Christopher Wong note that UK political risks, including Labour’s by‑election defeat and potential leadership challenge, continue to weigh on Pound sentiment. However, firmer growth data, ongoing disinflation, a loosening labour market and supportive gilt issuance dynamics provide fiscal relief. Once political uncertainty eases, strategists see scope for EUR/GBP to move lower over time.

UK politics versus improving macro backdrop

"Political risks remain a drag on the GBP. Labour’s defeat in last week’s Gorton by-election increases the likelihood of a leadership challenge after the May local elections."

"Still, it is unclear whether lingering political uncertainty warrants a higher fiscal risk premium – the key factor behind past episodes of GBP weakness."

"Recent data point to a firmer UK growth backdrop than the rise in the unemployment rate suggests. Ongoing disinflation and a loosening labour market support further BoE cuts, which in turn provide fiscal relief."

"This week’s gilt remit should add to the positive fiscal narrative following January’s large budget surplus. GBP volatility may stay elevated near term."

"However, once political risks ease, we continue to see scope for EURGBP to retrace lower."

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