UK business activity contracts as Sterling eases amid Keir Starmer succession uncertainty

On Tuesday, the British pound depreciated against a stronger dollar as investors sought more details on the replacement for UK Prime Minister Keir Starmer after his resignation, reflecting reports that UK business activity slowed down this month.

Starmer’s significant move to step down ensures a seamless succession; however, Andy Burnham has become the new Member of Parliament for Makerfield.

Earlier, Andy Burnham had remarkably won the Makerfield by-election against the Reform-the party in second place by securing more than 9,000 votes. At present, this remains unclear if Burnham will face a leadership challenge or possibly replace Starmer.

For those unversed here, Burnham’s main rival, Wes Streeting reportedly pulled out of a leadership campaign, stating that he would be backing Burnham.

In this regard, Tommy von Brosmen, FX strategist said: “The path is paved for Andy Burnham to be the next prime minister, and I think the market was relieved for that.”

“Going forwards, focus will be on who becomes chancellor, but I think most are conservative enough not to cause havoc in the market…referencing former Prime Minister Liz Truss’s premiership in 2 2022 that saw the pound fall to a record low against the dollar.”

Traders on a prominent betting site Polyamerket assert that the race is a crucial state as the ruling party prepares to select a new finance minister. On the other hand, Streeting reportedly holds a 70% chance of winning, while Ed Miliband at nearly 20%.

InG FX strategist Francesco Pesole indicated that Streeting is generally considered a more market-friendly pick than Ed Miliband, the contender for the job.”

In line with a survey released on Tuesday, the next prime minister will inherit a stagnant growth model with business activity contracting in June at its sharpest level from April 2025.

It is pertinent to mention that S&P Global’s composite Purchasing Manager’s Index, which integrates the services data with manufacturing, fell to 49.4 from 49.7. However, the services PMI dropped to 48.7 from 49.3, marking one of its weakest readings since January 2023.

Rob Wood, the chief economist at Pantheon Macro was of the view that business sentiments are continuing to be burdened by political anxiety in June so Starmer’s decision to resign could calm market fears regarding an unstable handover.

As reported by Reuters, uncertainty persists about Burnham’s policy reforms, meaning businesses are expected to remain cautious over the coming months.