Is the Pound Sterling about to take another wild ride? The latest economic data offers a glimmer of hope, but political undercurrents could quickly change the narrative. Let's dive into the factors impacting the British pound today.
Updated: Friday, January 23, 2026, 07:24 GMT
By: Gary Howes
Image © Pound Sterling Live
Fueling optimism, recent data suggests the UK economy might be more resilient than anticipated. Retail sales figures released ahead of the weekend paint a brighter picture. In December, retail sales climbed by 0.4% month-over-month, exceeding market expectations that predicted a decline of 0.1%. Furthermore, the year-on-year retail sales figure jumped by a healthy 2.5%, significantly surpassing the consensus forecast of 1.0%. That's more than double what economists predicted!
So, what did this mean for the pound? Immediately after the release, the pound saw a slight uptick. The GBP/USD exchange rate edged up from 1.3480 to 1.3496. While not a dramatic surge, the market reaction was noticeable.
Similarly, the pound to euro exchange rate experienced a modest increase, moving from 1.1483 to 1.1490. These movements, while small, indicate that positive economic news can still provide a boost to the currency.
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But here's why this data matters: These positive retail sales figures could be enough to sway the Bank of England (BoE). The data suggests there's sufficient demand within the UK economy, potentially leading the BoE to reconsider cutting interest rates in February. If interest rate expectations remain stable, the pound has a stronger foundation to recover against the euro after a period of weakness.
Coming up next is the highly anticipated release of the Purchasing Managers' Index (PMI) data for January, scheduled for 09:30 UK time. This data will give us a more granular view of economic activity in different sectors, and is something all investors should be watching closely.
However, economics isn't the only player on the field. Politics is firmly back in the spotlight, and it's already influencing the pound. Traders in the City of London reported a clear market reaction on Thursday to news surrounding Andy Burnham's potential path to Parliament. The pound dipped on the headlines. Why?
GBP/EUR Year-Ahead Consensus Forecast Targets
Median, highest and lowest forecast targets for 2026 from a poll of over 30 investment banks.
Compiled by Pound Sterling Live for Horizon Currency.
Andy Burnham, the current mayor of Greater Manchester, is a prominent figure within the Labour Party, known for potentially challenging Prime Minister Keir Starmer for leadership. The recent resignation of Labour MP Andrew Gwynne from his Manchester seat presents a tempting opportunity for Burnham to enter Parliament.
Burnham's policy proposals, particularly his advocacy for increased borrowing to fund projects like social housing, have raised concerns in the markets. With the UK's national debt already a significant issue, investors are wary of a potential Burnham leadership that might lead to further increases in government borrowing. This is a point of contention, and views vary on whether increased spending is beneficial or detrimental in the long run. What do you think?
One trader even told Sky News:
"The Burnham angle to the Gwynne story was very interesting for markets as we saw a sudden sell-off in GBP and gilts. Nothing huge in real terms but it certainly confirmed how the market would react to Burnham potentially having a pathway into Parliament and then putting in a leadership challenge.
"The underlying political risk view for markets is that as bad as Starmer and Reeves may be, there's potentially something worse waiting in the wings, of which Burnham is but one."
And this is the part most people miss: There's a significant obstacle standing in Burnham's way: Labour's National Executive Committee (NEC). Recent changes to the party's rulebook now require mayors to obtain express permission from the NEC before resigning and running for Parliament. Some believe this rule change was specifically designed to preempt Burnham's potential move, effectively blocking his path. This adds another layer of complexity to the situation.
So, while this challenge might temporarily ease market anxieties, it's unlikely to eliminate them entirely. Politics will continue to cast a shadow over the pound throughout 2026. The upcoming local elections in May are expected to be challenging for the Labour Party, potentially creating an opportunity for internal challenges to Starmer's leadership. The resulting shift towards a more left-leaning platform is likely to be met with unease by the markets. This is a controversial topic, as different political ideologies have varying impacts on the economy. What are your thoughts on how political shifts influence the pound's value? Do you believe the markets are justified in their apprehension, or is there a potential upside to a shift in political direction? Share your views in the comments below!
