Sir Keir Starmer's resignation following Andy Burnham's landslide victory in the Makefield by-election sets the stage for a new prime minister. Burnham is widely considered the frontrunner, with Starmer anticipating a new leader before parliament returns in September. The City's primary concerns revolve around Burnham's economic agenda, particularly taxes, borrowing, spending, and his choice for Chancellor.
Burnham's Economic Stance
Burnham has stated he would adhere to fiscal rules set by Chancellor Rachel Reeves and acknowledges the need to reduce UK debt. This suggests he aims to avoid unsettling bond markets by not significantly increasing government borrowing in the short term. He also commits to Labour's manifesto pledge not to raise income tax or national insurance for working people.
However, Burnham spoke of a "final chance to change" after his by-election win, outlining a vision that includes lowering water, energy, and rail bills. He has previously advocated for greater public control over key utilities and the "re-industrialisation" of northern England.
Market Reactions and Concerns
Financial markets had already priced in a Makefield victory, and there was no immediate reaction to Starmer's resignation. However, political upheaval from the leadership change could create unease, as markets favor stability. A key concern is who will become chancellor under a new Cabinet.
Dan Coatsworth, head of markets at AJ Bell, noted: “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.” He highlighted former transport secretary Louise Haigh as a close ally but noted a fraud conviction could disqualify her. Ed Miliband is also considered a potential candidate, bringing considerable experience.
Economist Perspectives
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.”
Kathleen Brooks, research director at XTB, said Burnham would have 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." The City seeks certainty over the next leader's economic plans and will be nervous about any unfunded spending proposals.
