Sir Keir Starmer's resignation has set the stage for a new Labour leader, with Andy Burnham emerging as the frontrunner after his landslide victory in the Makefield by-election on Friday. Sir Keir confirmed that a new prime minister would be in place before parliament returns in September, and Burnham is widely tipped to take over.
City Concerns Over Economic Policy
One of the biggest questions for the financial markets is Burnham's stance on taxes, borrowing, and spending, as well as who he would appoint as chancellor. Burnham has stated he would adhere to the fiscal rules set by Chancellor Rachel Reeves and acknowledged the need to reduce UK debt. He also committed to the Labour manifesto pledge not to raise income tax or national insurance for working people.
However, after his by-election win, Burnham spoke of a "final chance to change" and outlined a vision for the UK economy that includes bringing down water, energy, and rail fares, advocating for greater public control of key utilities, and promoting "re-industrialisation" across northern England.
Market Reaction and Stability
Financial markets had already priced in the Makefield by-election result, so there was no immediate reaction to Sir Keir's resignation. But political upheaval from a leadership change could create unease, as markets favour stability. Dan Coatsworth, head of markets at AJ Bell, said: "Burnham's choice of chancellor if he becomes prime minister could have a major impact on bond markets. Bond investors like boring and dull – they want someone who has a plan where the maths stacks up and they stick to it."
Potential chancellor candidates include former transport secretary Louise Haigh, though a fraud conviction might disqualify her, and Ed Miliband, who brings senior political experience.
Economists' Views on Spending Risks
Economists suggest Burnham may lean left on economic policy. Rob Wood and Elliott Jordan-Doak of Pantheon Macroeconomics said he could "pitch to Labour MPs' left-leaning instincts for more spending, funded by higher taxes and moderately looser fiscal rules, as well as additional regulation." They added: "We think Mr Burnham would be wary of a big bang fiscal change, because he needs to avoid a repeat of the gilt market meltdown that torched the previous Conservative government's reputation for economic competence. But risks clearly lean to more spending."
The City seeks certainty over the next leader's economic plans and fears unfunded spending. Kathleen Brooks, research director at XTB, said Burnham would need to "work to persuade financial markets that he is the right man for the job to grow the UK economy and get debt back under control."
