Burnham return rattles gilt markets
Gilt markets will treat Andy Burnham’s return to Westminster as a “major escalation of political and fiscal risk”, warns the CEO of one of the world’s largest independent financial advisory organisations.
The warning from Nigel Green of deVere Group, which has $14bn under advisement, comes after the Greater Manchester mayor announced his intention to stand in the Makerfield by-election, a move widely interpreted in Westminster and financial markets as the clearest sign yet that he is positioning himself for a future Labour leadership bid as pressure intensifies on Sir Keir Starmer.
Burnham confirmed on X that he would seek permission from Labour’s NEC to contest the seat after MP Josh Simons said he would step aside to allow Burnham’s return to Parliament.
The development lands at a moment of deepening unrest inside Labour over collapsing poll numbers, leadership woes, widening divisions over tax and spending, and growing market concern over Britain’s fiscal trajectory.
He says: “Andy Burnham represents the biggest threat to the gilt market among the serious Labour contenders because investors will immediately associate his leadership ambitions with heavier state spending, looser fiscal discipline and a greater willingness to test market tolerance on borrowing.
“The bond market remains traumatised by the Liz Truss mini-budget crisis.
“Everyone still remembers how quickly Britain lost credibility once investors believed fiscal discipline had broken down.”
The political shockwaves surrounding Burnham’s announcement hit a market already under strain. UK 10-year gilt yields surged to 5.13% this week, their highest level since 2008, as traders absorbed the prospect of a destabilising Labour succession battle alongside renewed inflation fears and rising oil prices.
The deVere CEO continues: “The Truss episode fundamentally changed how investors assess British political risk.
“Global capital now reacts instantly to anything perceived as fiscally reckless.
“Markets no longer wait for full policy detail. They move on expectations and probability. Burnham’s return to Westminster immediately increases fears inside the bond market about the future direction of Labour economic policy.”
The Truss mini-budget triggered one of the most violent bond sell-offs in modern British history in 2022, forcing emergency intervention from Bank of England after pension funds came close to collapse amid spiralling gilt yields.
“Investors watched Britain spiral into financial instability within days during the Truss crisis. Pension funds came under severe stress, sterling collapsed and borrowing costs exploded higher.
“That experience permanently lowered the threshold for market panic in the UK.”
According to investors surveyed by the Financial Times, Burnham was viewed as the Labour figure most likely to trigger a negative reaction in gilts, ahead of Angela Rayner and Ed Miliband.
Wes Streeting was widely seen as the safest option for markets due to his perceived economic pragmatism and closer alignment with Treasury orthodoxy.
Nigel Green says: “Wes Streeting is regarded by markets as materially safer because investors see him as more disciplined, more centrist, and substantially less likely to provoke confrontation with bond markets.
“Burnham is viewed very differently. His political brand has long been associated with activist government, interventionist economics and expanded public spending.”
Burnham has built his national profile around calls for greater state involvement in transport, infrastructure, housing and industrial strategy, while repeatedly advocating stronger regional spending powers and a broader economic role for government.
Nigel Green says: “Britain’s fiscal backdrop already looks fragile. Debt sits close to the size of the economy, refinancing pressures remain intense and debt interest costs are painfully high.
“Against that backdrop, markets are exceptionally sensitive to any politician associated with materially higher spending ambitions.”
The UK government faces borrowing requirements exceeding £290bn this financial year, leaving Britain heavily reliant on continued overseas demand for gilts at a time when confidence already looks brittle.
Nigel Green says: “Britain depends on international investors buying huge quantities of government debt every month. Confidence is everything.
“If markets conclude Labour is drifting toward a more fiscally aggressive direction under Burnham, yields will rise sharply to reflect that risk.”
He goes on to say: “Higher gilt yields rapidly feed into mortgage pricing, business lending costs, corporate investment decisions and sterling stability.
“The damage from another confidence crisis would spread across the economy extremely quickly.”
City economists remain acutely aware that structural vulnerabilities exposed during the 2022 pension fund crisis have never fully disappeared despite intervention from the Bank of England and subsequent market stabilisation.
“The UK remains unusually exposed to shifts in investor confidence because borrowing needs remain enormous and growth remains weak.
“Burnham’s return to Parliament fundamentally changes the political calculation around Labour succession planning.”
The deVere CEO concludes: “For gilt markets, he’s currently viewed as the highest-risk frontrunner because investors believe his leadership would materially increase the probability of another destabilising clash between Westminster and bond markets.”