Traders in London's financial markets have staked their biggest bet against the pound in almost a decade, according to The Mail on Sunday.
In a blow to Prime Minister-in-waiting Andy Burnham, speculators are piling into short positions in the expectation that sterling will fall against the dollar and other currencies if Burnham's government moves to the Left.
News of the £7billion wager against the pound comes as Burnham, who is will replace Keir Starmer and enter No.10 later this month, seeks to calm financial markets.
His major policy speech last week promising to devolve more power to English regions caused barely a ripple on the bond markets, though Government borrowing costs remain high, but this news shows there is little confidence that he will prove to be more competent than Starmer.
Sterling recently fell to $1.32 after Burnham emerged as the front-runner to oust Starmer when he won the Makerfield by-election, clearing his path back to Parliament.
Now, in what amounts to a big thumbs-down on the prospect of a Burnham premiership, speculators have raised their wagers on a weaker pound to their highest level since the aftermath of Brexit almost ten years ago. All of which would lead to a reduction in tax revenues, more borrowing to fund the deficit, higher inflation and further weakening of the pound.
And the the UK Government would have no option other than to seek a bailout from the IMF as Labour governments of the 1960s and 70s did.
The incoming PM has pledged to retain fiscal rules designed to the curb excessive borrowing of the Starmer - Reeves financial policy and stick to Labour’s 2024 manifesto promise not to raise VAT, income tax or employee National Insurance. But the former Mayor of Greater Manchester has suggested other taxes could rise, while ruling out ‘crude cuts’ to the welfare bill.
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Burnham has already expressed his opinion on 'the markets' and seems to believe he can ignore them and introduce whatever public spending policies he has in mind. The previous Labour government left a 'no money' note when it exited in 2010; the one before it had to apply to the IMF in 1976 for a fiscal bail-out. The common denominator then and now being that of SOCIALIST GOVERNMENTS running out of cash and credibility as they slide towards authoritarianism.
A financial or currency shock - as we saw with the Soros bet of a similar amount in the 1990s - during the handover of Starmer to Burnham could be politically exploited to reset the UK’s economic baseline. It would weaken confidence in the incoming Burnham government, justify tighter controls on the financial system which, so long as things go according to plan, then shifts public appetite toward more state intervention, and creates the opening for reforms like a CBDC that would have been harder to sell before.
It is the road to communism.
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