On 18 June, voters in the constituency of Makerfield, in Greater Manchester, will head to the polls for a closely watched by-election.
On paper, voters in Makerfield will be voting for a new MP to represent them in parliament, but in practice, their decision could reshape the UK government and have far-reaching consequences for the pound.
A government in crisis
The roots of the UK’s current political turmoil and Labour’s leadership crisis can be traced back to the party’s poor showing in the May local elections.
The results fuelled growing unease within the parliamentary party about Labour's direction under Prime Minister Keir Starmer. Several senior figures openly questioned whether the government was doing enough to reconnect with traditional working-class voters, while concerns mounted over Labour's declining support in northern England and its vulnerability to Reform UK.
The fallout triggered cabinet resignations, growing calls for change and intense speculation about potential successors.
Although Starmer has repeatedly insisted he intends to remain leader, many in the Labour Party have begun positioning themselves for a potential contest, with Andy Burnham appearing the most popular amongst Labour MPs.
Why is the Makerfield by-election so consequential?
Andy Burnham is currently the Mayor of Greater Manchester and one of Labour’s most recognisable figures, and he has already signalled he is willing to challenge Starmer for the Labour leadership.
But while he might be seen as the frontrunner to be the next Labour leader, under Labour Party rules, he is currently ineligible to stand in any leadership contest as he’s not a sitting member of the Parliamentary Labour Party (PLP).
However, Labour MP Josh Simons opened a route for Burnham to return to parliament after his resignation triggered the by-election in Makerfield.
While by-elections are usually judged by local issues, turnout and the size of the swing against the current government, Burnham’s participation has transformed the race for the Makerfield seat into perhaps the most pivotal UK political event since the 2024 general election and markets are watching closely.
Beware the bond market
In the wake of the local elections in May, the UK bond market became hyper-sensitive to political headlines, with 30-year yields being propelled to their highest levels since 1998 and triggering significant volatility in GBP exchange rates.
The spike in gilt yields was in part linked to the prospect of Burnham becoming PM.
Burnham previously suggested that the UK should not be ‘in hock’ to bond markets and positioned himself as more of an interventionist, arguing for stronger public control in areas such as transport and essential services, funded in part through increased borrowing.
He has since softened his stance regarding the bond market, which helped to rein in gilt yields, but there remains a degree of uncertainty over how closely he may stick to the government’s current fiscal rules, particularly as he seeks to position himself as a break from Starmerism.
What could the by-election mean for the pound? Three different scenarios
1. Burnham wins comfortably and quickly challenges Starmer
This is the scenario most likely to increase political uncertainty in the short term.
A decisive Burnham victory would strengthen the argument that he has momentum. If he then moves quickly towards a leadership challenge, Sterling could face renewed pressure as markets assess the risk of a change in Prime Minister and economic strategy.
In this scenario, the pound could weaken if gilt yields rise on fiscal concerns. However, the scale of any move would depend on how Burnham frames his economic message. Clear commitments to fiscal responsibility could help calm nerves.
2. Burnham wins, but only by a narrow margin
A narrow Burnham win would create a more complicated picture for the pound.
While he would return to Parliament, it would be without the same sense of invincibility. Markets may still price in leadership risk, but the move in the pound could be more limited if investors believe Starmer has a chance of surviving.
This could lead to prolonged volatility in Sterling rather than a sharp move in either direction. GBP exchange rates would become increasingly sensitive to political headlines, polling, MP endorsements and gilt market moves as investors try to judge whether a leadership contest is truly imminent.
3. Burnham loses the by-election
If Burnham fails to win the seat in Makerfield, it would be a major political shock.
It would likely damage his leadership prospects and may temporarily strengthen Starmer’s position. Sterling could find some support if markets view the result as reducing the risk of an immediate Labour leadership contest.
However, this would not remove all political risk. A Labour loss in Makerfield would also reaffirm that voters are deeply dissatisfied with the party.
This may push Labour MPs to rally around another challenger to Starmer in hopes of reviving the party’s fortunes before the next general election – an outcome that could also result in more long-term pain for the pound.
What could the result of the Makerfield by-election mean for GBP/EUR?
Movement in the GBP/EUR exchange rate may be closely watched following the Makerfield by-election because the euro offers a useful comparison point for how investors view UK political risks.
The eurozone faces many similar fiscal challenges to that of the UK, including weak growth in parts of the bloc and pressures posed by the latest energy price crisis.
This is why the pair could provide a clearer signal of just how much political risk premium investors are pricing into the pound, rather than simply reacting to a wider deterioration in European sentiment.
GBP/EUR is also likely to be influenced by potential policy divergence between the European Central Bank (ECB) and the Bank of England (BoE).
While the ECB is expected to raise interest rates following its June meeting, the BoE – which concludes its latest meeting on the same day as the by-election – is expected to keep rates on hold and strike a more cautious tone.
How might GBP/USD react to the Makerfield by-election?
GBP/USD could also see heightened volatility around the Makerfield by-election, as the vote comes immediately after the Federal Reserve’s June policy meeting. This will be the first meeting under new Fed Chair Kevin Warsh, making it a potentially important moment for the US dollar.
The Fed decision also comes hot on the heels of a run of bullish US data. Stronger-than-expected jobs figures have reinforced the view that the US economy remains resilient, while renewed inflation concerns have led some investors to question whether the Fed may need to keep interest rates higher for longer, or even consider further tightening if price pressures persist.
If the Fed sounds hawkish and US data continues to impress, the dollar could strengthen before the Makerfield result is known. If the by-election then increases UK political uncertainty, the pound could come under pressure from both sides of the GBP/USD pairing.
A summer of uncertainty for the pound
Of course, politics is only part of the picture. The pound’s medium-term outlook is also likely to remain clouded by the economic headwinds facing the UK, including weak growth, sticky inflation, and limited fiscal room for the government to offer support, regardless of who is Prime Minister.
For now, FX markets remain in a holding pattern, keeping a watchful eye on the North West. Come 18 June, the outcome in Makerfield may either extinguish Labour's leadership rebellion or throw the doors wide open to a summer of intense political and economic turbulence.
Stay up to date with the latest rate movements
With the by-election and subsequent leadership contest set to continue to drive FX volatility through the summer, keeping track of the latest market movements can help you plan your international transfers with more confidence.
A free Currencies Direct account gives you access to daily market updates, live exchange rates and rate alerts, with no obligation to make a transfer. You can also speak to your dedicated account manager for guidance on your currency options.
Makerfield by-election FAQ
When is the Makerfield by-election?
The Makerfield by-election is due to take place on 18 June 2026. Voters in the Greater Manchester constituency will elect a new MP following the resignation of Labour MP Josh Simons.
When will the Makerfield by-election result be announced?
The result of the Makerfield by-election is likely to be announced overnight, in the early hours of 19 June, assuming counting begins shortly after polls close at 10pm on 18 June. However, the exact timing will depend on turnout, the speed of the count and whether there are any recounts.
Who is running in the Makerfield by-election?
Those contesting the Makerfield by-election include Andy Burnham for Labour, Robert Kenyon for Reform UK, Michael Winstanley for the Conservatives, Jake Austin for the Liberal Democrats, and Sarah Wakefield for the Green Party, alongside candidates from other smaller parties and independents.
What are gilt yields?
Gilts are UK government bonds. In simple terms, they are a way for the government to borrow money from investors. The yield on gilts is the return investors receive for holding that government debt. When gilt yields rise, it often means the government has to offer a higher return to attract buyers.
Why do gilt yields matter for the pound?
Gilt yields matter because they influence investor confidence in the UK economy and the government’s borrowing costs. If yields rise sharply because markets are worried about fiscal policy or political uncertainty, the pound can come under pressure. This is because investors may demand a higher return to hold UK assets, or reduce their exposure to Sterling altogether.
