Sterling Holds Near Two-Month High as UK Fiscal Worries Recede
Market Movements and Economic Outlook
By Stefano Rebaudo
Sterling Performance Against Major Currencies
July 16 (Reuters) - Sterling hovered near its highest level in more than two months against the dollar, and edged lower versus the euro, as concerns over Britain's fiscal outlook faded.
Impact of UK Political Developments
Andy Burnham is expected to appoint interior minister Shabana Mahmood as finance minister when he becomes Britain's prime minister next week, rather than the more left-leaning energy minister, Ed Miliband, easing concerns about fiscal discipline.
UK Economic Growth and Sector Analysis
Britain's economy eked out minimal growth in May as the services industry expanded but other sectors shrank, suggesting fragile confidence among businesses.
Global Currency Trends
The greenback was little changed against major currencies as the impact of cooling inflation on U.S. rate expectations offset risks of a further spike in oil prices.
Sterling and Euro Movements
The pound was down 0.05% at $1.3533, after jumping 1.13% the day before to $1.3556, its highest level since May 12.
Market Reactions to Political Appointments
“For markets, a move away from Miliband as chancellor is likely to be seen as modestly supportive given his preference for greater fiscal expansion,” Matthew Ryan, head of market strategy at global financial services firm Ebury, said.
Andy Burnham is expected to be formally sworn in as prime minister on July 20.
Fiscal Policy and Economic Prospects
Britain will need extra tax rises or spending cuts to prevent government debt spiralling higher from current levels, the Office for Budget Responsibility said last week.
Productivity Growth and Long-Term Outlook
“Stronger trend productivity growth would enable the economy to grow somewhat faster before inflation begins to take off and makes it easier to generate sufficient tax revenue to fund public spending,” Andrew Wishart, UK economist at Berenberg, said.
“We don’t think that the policies new Prime Minister Andy Burnham has proposed so far will make much of a difference to the UK’s long-term growth prospects, but he might get lucky,” he added.
Wishart argued that the UK economy is not out of the woods, but a combination of resilient growth and flatlining employment implies that the pickup in productivity growth seen in 2025 has continued into 2026.
Euro and Sterling Exchange Rate Update
The euro rose 0.13% to 84.79 pence after falling 0.72% on Wednesday to 84.55 pence, the lowest level since June 10.
(reporting by Stefano Rebaudo; editing by Sharon Singleton)
