Sterling falls as Starmer challenges grow

The long-awaited move against the premiership of Sir Keir Starmer started in earnest yesterday, dragging the pound down by well over 1% against the US dollar and not far off that against the euro.

In (yet another) dramatic day in British politics, first the prime minister’s main challenger from the right of the Labour Party, Wes Streeting, resigned as Health Secretary, heavily criticising the government’s “drift” and lack of “vision”. Then Starmer’s main challenger from the soft left of the party, Andy Burnham, said he was standing for parliament as an MP resigned to allow for a by-election.

Thus, the complicated systems of the Labour Party that had frustrated challengers seem to have been overcome. Angela Raynor claims to have settled her tax affairs too, so all three main challengers should have a clear run, always assuming that Burnham can win the seat.

Sterling spent the afternoon sinking rapidly and this morning is at its weakest for a month against both. The upset has been felt not only with currencies. The Financial Times reports this morning on senior businesspeople’s dismay that “uncertainty over Sir Keir Starmer’s future is putting at risk investment decisions and the country’s reputation”.

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For the PM and chancellor this all came as an unwelcome distraction on what could have been a good day. The economy was revealed to have grown by 0.6% in the first quarter of 2026, with Gross Domestic Product (GDP) gaining 0.3% in March alone. Computer programming and advertising were the standout industries, according to the Office for National Statistics. That being said, a host of economic experts suggested that this would be the last hurrah before the economy shrinks on the back of the war in Iran and rising oil prices.

Elsewhere in the world, Kevin Warsh has been appointed Chair of the US Federal Reserve. It seems unlikely that President Trump will be contributing much to outgoing Chair Jerome Powell’s leaving present, but will Warsh be any more malleable in doing the president’s bidding and cutting interest rates? It seems unlikely, with producer price inflation (PPI) in the USA shooting up this week, if anything they’ll be going up.

Trump has been in China this week, where President Xi Jinping praised progress in trade talks but raised troubling questions about Taiwan. The US dollar has been on a remarkably consistent slow-but-steady dive against the renmimbi over the course of the past year, losing 6% overall. That continued yesterday.