FX.co ★ Sterling Falls Below $1.35 as Labour Suffers Election Setback

Sterling fell below $1.35 after the UK Labour Party lost a key by-election, rekindling doubts about Prime Minister Keir Starmer’s leadership. Labour was defeated in Gorton and Denton, near Manchester—a constituency it had comfortably retained in the 2024 general election—with the Green Party winning and Labour pushed into third place behind Reform UK.

The upset has intensified uncertainty over the futures of both Starmer and Chancellor Rachel Reeves, amid speculation they could be replaced by ministers more inclined toward higher public spending, potentially adding further pressure to the UK’s already stretched public finances.

At the same time, the UK GfK Consumer Confidence Index unexpectedly declined in February, as rising unemployment weighed on household sentiment. In monetary policy, traders are increasingly pricing in interest rate cuts from the Bank of England, responding to softer labour market data and a continued easing in inflationary pressures.