The political turmoil that began with Labour's disappointing local election results in May has reached its climax, with Prime Minister Keir Starmer announcing his resignation just days after Andy Burnham’s commanding victory in the Makerfield by-election.
As the former Mayor of Greater Manchester prepares to enter Downing Street, foreign exchange markets are scrambling to price in what this new era means for the UK economy, bond yields, and the pound (GBP).
Why did Starmer resign?
The result in Makerfield delivered the clearest possible outcome.
Defying tighter pre-election polls that suggested a strong challenge from Reform UK, Burnham won the by-election by a decisive margin, securing more than half of the vote and a majority of over 9,000.
For Labour MPs already concerned about the party’s direction under Keir Starmer, the result provided a powerful signal of Burnham’s widespread appeal with voters.
After a weekend spent considering his options, Starmer confirmed he will step down, clearing the path for a change of Labour leader and Prime Minister less than two years after the party’s 2024 general election victory.
Will there be a Labour leadership contest?
Attention now turns to whether Labour will hold a formal leadership contest or whether Burnham’s rise becomes more of a coronation. Nominations are expected to open in early July and close a week later.
If no serious challenger emerges, Burnham could be confirmed as Labour leader and enter Downing Street by mid-July. If another candidate does stand, the contest could extend into the summer.
A swift ‘coronation’ for Burnham is likely to offer stability to the pound in the short term, as an uncontested transition could help limit some of the immediate political uncertainty. In comparison, a formal contest could lead Sterling to face a summer of choppy, headline-driven volatility, particularly if a contentious race proves damaging to Burnham’s image.
Could Burnham’s premiership pressure the pound?
While a swift transition might stabilise the pound in the short term, Burnham’s actual policy agenda represents the true medium-term driver for GBP exchange rates.
This will depend on whether Burnham can convince markets that his government will balance economic reform with fiscal discipline.
Burnham has built his political brand around a more interventionist approach to the economy, with a focus on regional growth, public services, transport, and the cost of living.
Such a policy platform could prove popular with voters who feel the UK economy has not been working for them, but GBP investors may be more wary.
The bond market litmus test
No doubt, the bond market will serve as the primary judge of Burnham's economic credibility, and he will be conscious of the need to reassure investors, having previously caused some turmoil in late 2025 by suggesting the UK should not be ‘in hock’ to bond markets.
Who Burnham appoints to be his Chancellor of the Exchequer will therefore be a key focus for markets going forward.
The battle for No 11 is currently thought to be a two-horse race between former Health Secretary Wes Streeting and Energy Secretary Ed Miliband.
Streeting is viewed as being on the right of the Labour Party and may be the more market-friendly option, whereas Miliband, despite having previous experience in the Treasury, may be viewed less favourably by investors due to being on the left of the party and having previously argued for more borrowing.
If Burnham’s pick for Chancellor signals a looser approach to borrowing, or if markets fear that his government will move away from existing fiscal rules without a credible alternative, gilt yields could rise, raising UK government borrowing costs and likely pressuring the pound.
What does a Burnham budget look like?
Once a Chancellor is locked in, the next major milestone for Sterling will be the upcoming Autumn Budget.
Burnham is likely to enter Downing Street promising a clear break from Starmerism, with a stronger focus on regional growth, public services, housing, transport, and the cost of living.
However, the key question for FX markets will be how these ambitions are funded.
If the Burnham's Chancellor presents a fully costed budget that successfully balances targeted regional taxation with pro-growth deregulation, international investor confidence could surge, providing a solid floor for GBP exchange rates.
However, if the budget signals a heavy reliance on increased public borrowing to fund these structural changes, the gilt market may react defensively. A widening fiscal deficit could reignite inflationary fears, putting downward pressure on the pound.
What a Burnham premiership could mean for the BoE
Against the backdrop of UK political and fiscal uncertainty, the Bank of England (BoE) must continue to navigate monetary policy through the current economic challenges facing the country.
Following its June decision to leave interest rates on hold, the BoE already appears reluctant to move too aggressively while inflation risks, energy prices, and political uncertainty remain elevated.
A change of Prime Minister adds another layer of uncertainty, as policymakers will want to understand whether Burnham’s government plans to stimulate demand, increase borrowing, or introduce tax changes that could alter the inflation outlook.
As a result, the BoE may prefer to remain on the sidelines until markets have a better sense of the new government’s fiscal direction, potentially leading to a weaker pound if this is seen as further reducing the chances of an interest rate hike this year.
On the other hand, if Burnham’s fiscal policies are seen as expansionary, it could stoke inflation expectations and encourage the BoE to tighten monetary policy.
What could Burnham’s premiership mean for GBP/EUR and GBP/USD?
GBP/EUR will be closely watched by markets in the coming weeks and months as the euro offers an excellent baseline for measuring UK-specific risk as the Eurozone faces similar structural growth challenges and lingering energy price pressures.
A smooth handover in Downing Street could see GBP/EUR gain ground. Conversely, any signs of fiscal friction between Burnham’s new team and the Bank of England could quickly trigger a sell-off against the single currency.
Meanwhile, GBP/USD is trading just shy of a year-to-date low as Starmer’s exit arrives alongside a hawkish shift at the Federal Reserve under its new chair, Kevin Warsh.
Bolstered by a run of resilient US jobs data and sticky inflation figures, the odds of a US interest rate hike by the end of the summer are rising fast, while the pound risks losing clear monetary policy anchors if the BoE aims to prevent compounding political uncertainty, potentially opening the door to significant pressure on GBP/USD in the coming months.
A summer of uncertainty for the pound
Burnham’s decisive victory and Starmer’s resignation risk opening up a new chapter of economic uncertainty. While the political transition is moving rapidly, the underlying headwinds facing the UK economy – sluggish growth, sticky core inflation, and limited fiscal headroom – remain unchanged.
Burnham’s challenge will be to show that he can deliver a change in direction without undermining investor confidence in the UK’s public finances.
For now, FX markets are likely to remain highly sensitive to Labour leadership developments, gilt yield movements, and any signals about the next Chancellor. The by-election may have delivered a clear result, but the pound still faces a potentially volatile summer.
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.
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FAQs about Andy Burnham and the pound
What was the result of the Makerfield by-election?
Andy Burnham won the Makerfield seat with a commanding majority on 18 June 2026, securing his return to the Parliamentary Labour Party and triggering the immediate resignation of Keir Starmer.
When will the next Prime Minister take office?
Following Starmer's resignation, the Labour Party is expected to expedite the leadership process. If Burnham faces no significant opposition, his formal ‘coronation’ and appointment as Prime Minister should be concluded before Parliament breaks for its summer recess on 16 July. A formal leadership contest would be expected to conclude in time for the Labour Conference in September.
Why is Burnham’s pick for Chancellor so important for the pound?
The Chancellor sets the UK's tax and spending framework. Because Andy Burnham’s proposed policies involve higher regional spending, foreign exchange and bond markets are waiting to see if the new Chancellor will maintain fiscal discipline or increase government borrowing, which directly impacts gilt yields and the value of GBP.
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.
