The British pound traded above $1.35, its highest level since mid-May, after rallying on Wednesday amid reports that Home Secretary Shabana Mahmood is set to be appointed chancellor by Andy Burnham. Investors also digested fresh data showing the UK economy returned to growth in May, with GDP expanding 0.1% following a 0.1% contraction in April.
With Burnham’s appointment largely priced in, market attention has shifted to his choice of chancellor against the backdrop of the UK’s fragile public finances. Reports identifying Mahmood as the frontrunner helped reassure investors, easing concerns that Burnham might instead select Ed Miliband, who is widely viewed as favoring a more expansionary fiscal stance.
At the same time, rising tensions in the Middle East have driven oil prices to one-month highs, reinforcing expectations that the Bank of England will maintain a tightening bias. Markets now fully price in a rate increase in November, with another hike anticipated by March 2027.
