Finance
Sterling struggles after UK Labour Party suffers defeat in stronghold
Published by Global Banking & Finance Review®
Posted on February 27, 2026
2 min readLast updated: February 27, 2026
Quick Summary
Sterling stayed on the back foot on Feb. 27 as risk-off sentiment and a shock UK by-election loss for Labour in long-held Gorton and Denton (Greater Manchester) added to political uncertainty. Markets are also focused on the Bank of England’s policy path, with investors parsing Chief Economist Huw P
Pound slips as Labour defeat fuels UK political risk and BoE focus
By Amanda Cooper
Market reaction and political risk weigh on sterling
Sterling slides amid geopolitical tensions
LONDON, Feb 27 (Reuters) - The pound struggled to gain traction on Friday, as mounting geopolitical tensions prompted investors to back away from more typically volatile currencies, and after an election in northern England brought a resounding defeat for Prime Minister Keir Starmer's Labour party.
Sterling was heading for a second weekly decline, having lost 0.1% and on Friday stalled against both the dollar and the euro, which traded at $1.3483 and 87.55 pence, respectively.
Green Party victory adds pressure on Starmer
Britain's left-wing Green Party on Friday scored a landslide victory in an area of Manchester the Labour party had dominated for almost a century, piling further pressure on Starmer to prove that he should keep his job following weeks of political turmoil and calls for him to resign.
Gilts firm as yields dip
Gilts edged up modestly, pushing yields lower. Five-year bonds, which are set for their strongest monthly performance since last October, were last yielding 3.703%, down 1.4 basis points on the day, near their lowest since September 2024.
Sterling’s sensitivity to UK politics
The pound is highly sensitive to national politics. Doubt over Starmer's future and whether a more left-leaning successor might be inclined to further strain the UK's finances with more spending, for example, has acted as a drag on sterling for several weeks.
Analyst view on succession risk
"Anything that is seen weakening the position of Prime Minister Keir Starmer has hit the pound as of late, and the success of a more left-wing party (Greens) in this special election might increase the perceived possibility of a more leftish successor to Starmer should he leave office early," ING strategist Francesco Pesole said.
Prediction markets point to higher resignation odds
Prediction market Polymarket shows customers are placing a roughly 53% chance of Starmer stepping down by June, up from around 24% at the start of February.
Bank of England in focus ahead of remarks
Bank of England Chief Economist Huw Pill will address an economics panel later in the day. The BoE is widely expected to cut rates in March and deliver a second cut before the end of the year, based on money markets.
(Reporting by Amanda Cooper; Editing by Toby Chopra)
Key Takeaways
- •Politics hit FX: The Greens’ by-election win in Labour’s Gorton and Denton stronghold underscored a fracturing left vote and intensified scrutiny on PM Keir Starmer—an additional headwind for a pound that is historically sensitive to domestic political risk. (theguardian.com)
- •Leadership-risk pricing has moved into markets: Polymarket pricing around June 30, 2026 implies roughly a coin-flip chance of Starmer leaving office by late June (with other tenors higher/lower), illustrating how investors are quantifying headline-driven UK political volatility. (polymarket.com)
- •BoE expectations remain central: The BoE held Bank Rate at 3.75% in February, with Pill emphasising caution on further easing even as at least one member supported a 25bp cut—keeping sterling and gilts sensitive to incoming data and rate-cut timing. (bankofengland.co.uk)
References
Frequently Asked Questions about Sterling struggles after UK Labour Party suffers defeat in stronghold
1Why did sterling struggle to gain traction in the market?
Sterling was weighed down by rising geopolitical tensions that pushed investors away from more volatile currencies, and by fresh UK political uncertainty after a Labour defeat in northern England.
2What were the pound’s quoted levels against the dollar and the euro?
The euro was at 87.55 pence and sterling was quoted at $1.3483 against the dollar in the report.
3How did UK gilt yields move, and what was the five-year yield?
Gilts edged up and yields fell; the five-year gilt yield was 3.703%, down 1.4 basis points on the day, near its lowest since September 2024.
4What are markets expecting from the Bank of England on interest rates?
Money markets widely expect the Bank of England to cut rates in March and deliver a second cut before the end of the year.
