Leadership tensions within the UK government have prompted warnings from financial analysts that the pound’s current stability could prove temporary if internal Labour Party divisions intensify ahead of the November 26 Budget and next year’s local elections.
Health Secretary Wes Streeting denied on Wednesday, November 12, that he is positioning himself to replace Prime Minister Keir Starmer, dismissing media reports of an imminent leadership challenge as “self-defeating nonsense.” The denials came after Starmer’s allies briefed several British news outlets late Tuesday that they feared an attempted coup could emerge shortly after the Budget, with Streeting’s “ambition” viewed with “particular suspicion.”
Nigel Green, Chief Executive Officer of deVere Group, warned that while markets are not yet pricing in political instability, investors remain alert to risks that could resurface in 2026. “Government leadership rumours surfacing before a crucial Budget reinforce the sense that the government is under strain. Investors aren’t yet pricing in political instability, but they’re alert to the risk that this story could return in the new year,” Green stated in a November 12 release.
The speculation comes at a politically delicate moment as Chancellor Rachel Reeves prepares to unveil fiscal plans expected to include tax rises to fill an estimated £30 billion funding gap. Opinion polls suggest Starmer has become one of the most unpopular prime ministers on record, with Labour trailing Nigel Farage’s populist Reform UK party for months despite winning one of the biggest election victories in British history just 16 months ago.
Green emphasized that the greatest risk to Starmer’s leadership comes not immediately after the Budget but following local elections scheduled for May 2026. “We believe there’s unlikely to be an immediate leadership challenge after the Budget. The priority will be getting through it cleanly, but this will be extremely tough after it looks like income tax rises are now almost inevitable. The greater risk in terms of a leadership threat comes in May, after the local elections. If Labour performs badly, the internal pressure will intensify, and at that point we would expect a full on leadership contest,” the deVere Group chief explained.
Sterling traded around $1.315 against the dollar on November 12, with gilt yields remaining stable despite the political uncertainty. The pound showed slight firmness against the euro, suggesting markets have not yet factored in significant political risk premiums. Green described the currency as resilient for now but warned that calm depends on confidence that the government will deliver a credible Budget and remain politically unified afterwards.
The deVere Group executive noted that Starmer and Reeves are politically intertwined in investors’ eyes, functioning as a fiscal partnership that restored economic discipline after years of turbulence under previous Conservative governments. “If one of them goes, both could fall, we believe. This scenario would unsettle markets instantly,” Green stated, highlighting the interconnected nature of their political fates.
Speaking to Sky News on Wednesday morning, Streeting told the Mornings with Ridge and Frost program that he supported the prime minister and could not see circumstances under which he would challenge Starmer’s leadership. “I’m not going to demand the prime minister’s resignation. I support the prime minister. I have done since he was elected leader of the Labour Party,” Streeting stated, while accusing those responsible for the briefings of trying to “kneecap” him.
A “Wes for Leader” website was created on Tuesday, according to multiple media reports, though Streeting’s office dismissed suggestions of leadership ambitions as “categorically untrue.” A spokesperson said the Health Secretary’s focus remained on cutting waiting lists, recruiting 2,500 more general practitioners, and rebuilding the National Health Service.
Jordan Rochester, Head of Fixed Income, Currencies and Commodities (FICC) Strategy for Europe, Middle East, and Africa at Mizuho Bank, commented that risks to Starmer’s leadership are “likely to be noise for now” and that the prime minister will stay in office for the immediate term. “Starmer faces the worst opinion polling in history of any modern Prime Minister and there is no smoke without fire. If the budget passes without major upset, the idea of leadership replacement will be kicked into May’s local elections where polls suggest a big loss for Labour ahead,” Rochester stated.
Green warned that global investors maintain limited tolerance for renewed uncertainty, particularly remembering the 2022 gilt market turmoil that followed former Prime Minister Liz Truss’s mini budget. “Bond traders, in particular, remember the 2022 gilt turmoil vividly. Any sign that the government’s fiscal direction could change would push yields higher as markets demand a premium for political risk. The pound would soften as international investors move capital elsewhere,” the deVere Group chief cautioned.
Under Labour Party rules, any leadership challenge would require nominations from 20 percent of the parliamentary party, meaning 81 Members of Parliament would need to agree on an alternative candidate given the current size of Labour’s Commons representation. Senior Labour figures have raised concerns that up to 50 frontbenchers might be willing to stand down to force Starmer out should the Budget land poorly.
Other names mentioned by Labour MPs as potential leadership candidates include Home Secretary Shabana Mahmood, Energy Secretary Ed Miliband, and former Transport Secretary Louise Haigh. Deputy Prime Minister Angela Rayner is expected to emerge as a potential kingmaker in any leadership race, according to reports in The Times.
A YouGov poll in October showed just 21 percent of Britons holding a favorable opinion of Starmer, with 72 percent viewing him unfavorably, leaving the prime minister with a net favorability rating of negative 51, the lowest recorded by YouGov for any sitting prime minister. Labour is expected to face significant losses at the May 2026 local elections in England, Scotland, and Wales, with Reform UK poised to gain seats across all three nations.
Green concluded that the upcoming Budget represents a critical test of both fiscal credibility and political continuity. “The Budget will be about numbers, but the market focus is credibility and continuity. They will not tolerate leadership upheaval. If the Budget lands badly, and the party’s polling deteriorates through spring, the leadership story will gather momentum. That’s when you start to see the political risk premium widen, first in gilts, then in sterling. It can happen very quickly once confidence in leadership continuity is gone,” the analyst warned.
