Leadership Change and Economic Uncertainty
Sir Keir Starmer's resignation has paved the way for a new Labour leader, with Andy Burnham widely considered the frontrunner following his landslide victory in Friday's Makerfield by-election. Sir Keir anticipates a new Prime Minister in office before parliament returns in September. The financial markets are closely watching Mr Burnham's potential economic agenda, particularly his approach to taxes, borrowing, and spending, as well as his choice for Chancellor.
Andy Burnham's Economic Stance
Mr Burnham has stated he would adhere to the fiscal rules set by Chancellor Rachel Reeves and agrees that the UK needs a plan to reduce its debts. This suggests he does not intend to substantially increase government borrowing in the short term to avoid unsettling bond markets. He has also committed to the Labour party's manifesto pledge not to raise income tax or national insurance contributions for working people.
However, after his by-election win, Mr Burnham spoke of a 'final chance to change' and outlined his vision for the UK economy. This includes bringing down water and energy bills and rail fares, having previously advocated for greater public control of key utilities, and promoting 're-industrialisation' across the north of England.
Market Reactions and Concerns
Financial markets had already priced in a Makerfield by-election victory, so there was no immediate major reaction to Sir Keir's resignation speech. However, the political upheaval could create unease, as markets favor stability and certainty. A key concern is who will become Chancellor under a new Cabinet.
Dan Coatsworth, head of markets for 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.' He noted that former transport secretary Louise Haigh is seen as a close ally but a fraud conviction could disqualify her, while Ed Miliband is also being considered for the role.
Economists' Perspectives
Some economists suggest Mr Burnham may lean left on economic policies. 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 that he would likely avoid a major fiscal overhaul to prevent a repeat of the gilt market meltdown that damaged the previous Conservative government's reputation. However, risks lean toward more spending.
Kathleen Brooks, research director at XTB, said Mr 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.' The City seeks certainty over the next leader's economic plans and will be nervous about any unfunded spending proposals.
