Burnham Takes Premiership Amidst Market Jitters Over Fiscal Strategy
New Prime Minister pledges adherence to fiscal rules while seeking flexibility for infrastructure and cost-of-living support.
Image: Eddie Pollard / AI
Carla Rooney
Andy Burnham has assumed the role of Prime Minister, triggering immediate shifts across financial markets as his administration takes shape.
London trading closed with the yield on 10-year Government bonds, known as gilts, moving eight basis points higher, settling at 5.049%. This pushed the cost of UK state borrowing to its highest level in approximately two months.
The FTSE 100 finished the day 0.71% lower, closing at 10,524.76 points. The value of the pound slipped by 0.29% to 1.341 against the US dollar.
Burnham stated his priority is stability and adherence to existing fiscal rules. He confirmed his administration would explore flexibility within those rules for crucial infrastructure investment.
I’ve said we’ll stick to the fiscal rules, and by that I mean the existing fiscal rules, and use obviously any flexibility within them.
He told reporters he would use “any flexibility” he could find within existing fiscal rules, vowing to exploit it. Burnham added that he will “stick to the fiscal rules” agreed by Sir Keir Starmer’s administration and will not be “taking risks with the economy.”
He later reiterated, “I’ve said we’ll stick to the fiscal rules, and by that I mean the existing fiscal rules, and use obviously any flexibility within them.” This stance communicated a commitment to market stability while opening avenues for targeted spending.
The new Prime Minister has already indicated his Government will provide further cost-of-living support for households battling rising inflation. He promised to give people breathing space and help with the cost of living while meeting fiscal rules.
Markets were jittery on Monday but did not experience a significant meltdown. The UK economy faces persistent challenges, with growth remaining weak and state borrowing elevated.
The national debt stands at its highest level since the 1960s, echoing the post-war era of immense fiscal strain and reconstruction. The labor market also faces continued pressure, adding to the complex economic landscape Burnham inherits.
The UK's gross domestic product (GDP) grew at 0.1% in May, following a contraction of 0.1% in April. Across the Atlantic, the yield on the US 10-year Treasury widened to 4.59 per cent on Monday.
Burnham maintains he was not directly involved in unseating the previous Labour prime minister, stating he merely picked up the baton when passed to him. His past comments, however, caused alarm among investors when he previously stated governments should not be beholden to bond markets.
Healey now faces the immediate charge of finding the money to fill a hole in the defense budget that Reeves refused to address. This represents a significant and urgent fiscal challenge for the new Chancellor.
Beyond the defense budget, Burnham will also have to look at raising the personal allowance to lower taxes and fund a council housebuilding program. His administration may also bear the costs of potentially taking Thames Water and other utilities into public ownership.