The cost of Government borrowing edged higher on Friday morning following Andy Burnham's victory in the Makerfield by-election and fresh data revealing higher-than-expected state borrowing for May.
Market Movements
The 10-year yield on UK gilts – Government bonds – climbed by 0.05 percentage points to 4.81% shortly after markets opened. This movement largely mirrors changes in European bonds, which have been influenced by a renewed rise in oil prices overnight.
On Friday morning, the Office for National Statistics (ONS) reported that Government borrowing figures for May came in above expectations. The increase, driven by record debt interest costs for the month, is also likely to have contributed to the rise in gilt yields. Yields move inversely to bond prices, meaning the value of gilts dipped in early trading.
Sterling and FTSE 100
The pound remained roughly flat against the dollar at 1.320 for the day. It initially fell by as much as 0.5% following Mr Burnham's election but recovered those losses within two hours. Meanwhile, the FTSE 100 opened marginally lower, dipping by 0.02% to 10,397.68 points.
Burnham's Victory
Mr Burnham defeated Reform UK's Robert Kenyon in Makerfield by 9,231 votes, up from 5,399 in 2024, while Labour's vote share increased by 9.61%. His victory has set the stage for a potential leadership challenge to Prime Minister Sir Keir Starmer, with Mr Burnham stating that Labour has a “final chance to change” after his election.
The relatively muted market reaction suggests that most traders had already priced in a win by the favourite for the by-election, while global factors continue to heavily influence UK financial markets.
Chris Beauchamp, chief market analyst at IG, commented: “It’s hard to disentangle any weakness in sterling from a potential change of PM from the surge in US dollar strength after this week’s hawkish Fed meeting. Burnham’s win means a changeover is now all but certain, but questions of policy and the chancellor appointment will be the bigger driver.”
