Traders are betting against the UK as the political storm in Westminster continues to send jitters through asset markets.
The pound has tumbled to a two-week low against the dollar, clinging onto the $1.35 mark on Thursday morning.
Meanwhile, figures from IG revealed that short-positioning on the pound-dollar, a bet that the price will further tumble, has jumped 45 per cent, compared with just last week.
The figures showed one in five traders were also taking a more bearish stance on the pound as the leadership of Sir Keir Starmer continues to come under pressure.
Shorting activity on UK banks has also spiked in the last week, with volumes across the UK’s Big Four – HSBC, Natwest, Lloyds and Barclays – more than tripling week-on-week according to IG.
This comes after a major sell-off in the blue-chip lenders earlier this week as markets were rattled by the speculation of a more left-wing lender taking the helm, who may create a less favourable tax environment for the banks.
Traders reach for ‘sell UK button’
Chris Beauchamp, chief market analyst at IG, said: “Traders are increasingly reaching for the ‘sell’ button on UK assets… traders are using the pound and Britain’s flagship index as the clearest expressions of concern about where the UK economy could be heading next.”
He added with banks often viewed as a “barometer for confidence” in the economy, the rate of shorting suggests “nerves are beginning to spread more broadly across UK markets”.
Political tensions reached a new height on Thursday on speculation that health secretary Wes Streeting was set to fire the starting gun on a leadership contest.
This has led to numerous other candidates weighing in with reports suggesting both former Deputy Prime Minister Angela Rayner and energy secretary Ed Miliband are prepared to contest Streeting.
City economists have warned of uncertainty in the bond market following a changing of leadership.
But despite the jitters across gilt yields, some Labour MPs have refused to back down on a looser fiscal agenda.
Manchester Mayor Andy Burnham, who despite not being an MP is seen as a top name to run for leader, has previously warned that Britain was in “hock to the bond markets”.
Paula Barker, the Labour member for Liverpool Wavertree, said this week that markets would have to “fall into line” and that that investors would view the UK as “the best place to be” if the government unveiled “progressive policies that do speak to our communities”.