ABN AMRO’s Georgette Boele notes that Sterling has weakened alongside the Euro versus the US Dollar, with energy prices a key driver. She argues UK political uncertainty could temporarily lift volatility in Sterling and gilts, but expects this phase to be short-lived. Clear fiscal rules and continuity under Rachel Reeves could ultimately support the Pound despite leadership changes.

UK politics, gilts and fiscal outlook

"Uncertainty and speculation about possible changes in fiscal policy are expected to increase volatility in both gilt and currency markets, especially if a leadership contest takes place."

"However, we anticipate that this period of instability will be brief."

"If Rachel Reeves remains as chancellor, it would demonstrate consistency and a commitment to the fiscal rules that have supported market stability."

"We believe that, even with political changes, new policies are unlikely to worsen the UK's financial situation."

"In fact, new leadership may lead to higher government spending while sticking to the fiscal rules, which could strengthen the pound (see here)."

"UK politics may raise short-term volatility in sterling. But fiscal clarity could support sterling."

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