Sterling eases as Starmer replacement awaited, business activity contracts

By Samuel Indyk

LONDON, June 23 (Reuters) - The British pound eased against a stronger dollar on Tuesday as investors awaited details on the replacement for Prime Minister Keir Starmer following his resignation, while a survey showed that business activity contracted this month.  

Starmer's decision to quit paves the way for an orderly transition of power, with Andy Burnham, the new member of parliament for Makerfield, his likely successor.

It is not yet clear if Burnham will face a formal leadership contest or if other possible candidates to replace Starmer will step aside. Burnham's biggest potential rival, Wes Streeting, pulled out of a potential race on Monday, saying he would be backing Burnham.

"The path is paved for Andy Burnham to be the next prime minister and I think the market was relieved for that," said Tommy von Brömsen, FX strategist at Handelsbanken. 

"Going forward, focus will be on who will become chancellor (finance minister), but I think most are conservative enough not to cause havoc in the market. It's not like we're looking at another Truss moment," von Brömsen added, referencing former Prime Minister Liz Truss' short premiership in September 2022 that saw the pound fall to a record low against the dollar. 

Traders on betting site Polymarket think it is a two-horse race for the new finance minister, with Streeting given an almost 70% chance and Ed Miliband nearly 20%. 

"Streeting is generally considered a more market-friendly pick than Ed Miliband, reportedly the other main candidate for the job," said ING FX strategist Francesco Pesole in a note. 

Sterling was last down 0.2% against the dollar at $1.3222, just above its lowest since March of $1.31635 reached on Friday. 

Against the euro, the pound was little changed at 86.27 pence. 

SHAKY ECONOMY

The next prime minister is inheriting a stagnating economy, with business activity contracting in June at the fastest rate since April 2025, a survey showed on Tuesday, held back by a stuttering services sector. 

S&P Global's composite Purchasing Managers' Index (PMI), which combines the services data with manufacturing, fell to 49.4 from 49.7, with the services PMI down to 48.7 from 49.3, its weakest since January 2023. Readings below 50 denote a contraction in activity.

"Business sentiment continued to be weighed down by political uncertainty in June according to S&P Global, so Keir Starmer’s decision to resign earlier this week could calm business fears of a messy leadership transition," said Rob Wood, chief UK economist at Pantheon Macro. 

"But huge uncertainty remains about Mr. Burnham’s policy platform, so we think that businesses will remain hesitant over the coming months, weighing on GDP growth." 

(Reporting by Samuel Indyk; Editing by Andrew Cawthorne)