Sterling Under Pressure Amid Resignations Quaking Starmer Government

The British pound came under significant pressure on Monday against the U.S. dollar, euro, and Swiss franc, as a domestic political crisis escalates in the United Kingdom. Prime Minister Keir Starmer’s government faces its toughest challenge yet following the resignations of two senior aides within 24 hours: Morgan McSweeney, Chief of Staff, and Tim Allan, Communications Minister.


The resignations are linked to a growing scandal over the appointment of Peter Mandelson as Britain’s ambassador to the United States, after revelations about his past connections with the late billionaire and convicted sex offender Jeffrey Epstein. What began as a reputational issue has quickly evolved into a full-blown political crisis.


Reports indicate that Downing Street is preparing for the possibility that a group of ministers may call on Starmer to step down, with names like Health Secretary Wes Streeting and former Deputy Prime Minister Angela Rayner being floated as potential replacements, heightening political uncertainty.


Bank of England and Sterling Pressure

Sterling has also been under pressure since last week following the Bank of England’s decision to hold interest rates steady while signaling that further cuts may be needed in the near future. The central bank cited weak economic growth and a deteriorating labor market as reasons for its easing bias.

On Thursday, the Bank of England kept the key rate at 3.75% after its February Monetary Policy Committee meeting. Despite holding rates, the bank emphasized that future cuts remain necessary, given “persistent weak domestic demand and subdued inflation” in the U.K.

The bank’s focus on these economic fundamentals suggests that policy decisions will remain driven more by economic conditions than political turmoil. Markets continue to expect further rate cuts in 2026, with the central bank aiming to align interest rates with economic realities and support British growth following a prolonged period of quantitative tightening.


Weak Growth Supports Further Easing

The Bank of England sees weak growth, declining consumer confidence, and a slowing labor market as key factors likely to favor additional monetary easing. Its recent statements indicate that the central bank is likely to continue cutting rates in 2026, despite ongoing political uncertainty in the U.K. Economic pressures—such as slow growth, low inflation, and weak investment—are increasingly shaping policy decisions, outweighing the impact of domestic political risks.