MUFG’s Lee Hardman said the British Pound may stay weaker due to rising political uncertainty in the UK. He connected the recent falls in gilts and the Pound to Andy Burnham’s move to enter Parliament and the prospect of a leadership challenge to Prime Minister Keir Starmer.
The report also cited concerns about a shift to more left-leaning policies under new leadership. It said Burnham has called for GBP40 billion of extra government borrowing for long-term capital spending.
Political Risk And Gilt Market Strain
The article said these political factors come while the gilt market faces added pressure. It noted the risk of higher inflation linked to an energy price shock.
Hardman said MUFG is maintaining a short GBP/CHF trade idea in the near term. The article stated it was produced using an AI tool and edited by an editor.
Last year, we saw that rising political uncertainty in the UK was set to create a softer footing for the pound. The potential challenge to Prime Minister Keir Starmer and talk of a significant leftward policy shift proved to be a major catalyst for investor concern. This environment has continued to weigh on sterling through the early months of 2026.
The proposals we saw back in 2025 for an additional £40 billion in government borrowing placed immediate and lasting pressure on the UK gilt market. We have since watched the UK 10-year gilt yield climb from around 4.0% to its current level of 4.75% as markets price in higher fiscal risk. This sustained sell-off in government debt continues to act as a direct headwind for the pound.
Strategy And Positioning For Sterling Weakness
These domestic political developments were made worse by the energy price shock, which has kept inflation stubbornly high. With the latest inflation data for April 2026 still hovering at 3.5%, well above the Bank of England’s target, the central bank has limited room to manoeuvre. This backdrop suggests that sterling will struggle to find buyers.
Given this context, traders should consider using derivatives to position for further pound weakness or at least continued volatility in the coming weeks. Since late last year, GBP/USD has fallen from the 1.25 area to trade near 1.21, and the fundamental picture supports further downside. Buying put options on sterling against the dollar offers a clear way to express this view while defining risk.
The short GBP/CHF trade idea we held previously remains a compelling strategy, as the Swiss franc benefits from its safe-haven status during times of UK political stress. The cross has already fallen from 1.12 to 1.08 in the last six months, confirming the validity of this approach. Structuring bearish positions through options on this pair would be a prudent way to hedge against ongoing UK-specific risks.
