Mayor of Greater Manchester Andy Burnham.
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Andy Burnham, the frontrunner to overthrow U.K. Prime Minister Keir Starmer, abruptly cancelled a call aimed at placating investors nervous about his potential policy mix on Monday, the FT reported.
Burnham — who is not yet a sitting member of the U.K. parliament — will run in the June 18 by-election in Makerfield, north-west England. If he wins the seat, he is widely expected to launch a formal challenge to usurp Starmer’s position.
Starmer’s premiership has been under intense pressure following a crushing defeat for the ruling Labour Party in the U.K.’s local elections.
Political instability and Burnham’s bid to return to Westminster has sent jitters through the U.K.’s government bond market in recent weeks, amid expectations that he would be a tack to the left from Starmer and ramp up borrowing.
The U.K. has the highest borrowing costs in the G7, with yields on its long-term gilts trading well above the critical 5% threshold.
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Burnham, who last week wrote an op-ed calling for the nationalization of key industries and strong regulatory control over Big Tech and AI, has said in the past that politicians should not be “in hock to the bond markets” — comments he recently rowed back from.
According to the FT, Burnham was scheduled to participate in a call hosted by political advisory Signum Global Advisors to discuss various talking points, including “balancing fiscal policy change with bond market pressure.”
Sources told the publication that the call was postponed shortly before it was slated to begin, with participants told it could not be held due to a scheduling conflict.
CNBC contacted Signum Global and Burnham’s office for comment.
Markets underestimating U.K. political risk
In an analysis published Wednesday, financial services firm Ebury said markets were underestimating the consequences of the Makerfield by-election and ongoing political risk.
Ebury’s base care, according to the firm’s head of market strategy Matthew Ryan, is that Starmer’s tenure ends in the near term through a formal leadership challenge.
Ryan labeled the market risk posed by a Burnham victory as “very high.”
“A Burnham victory would, in our view, represent the most significant leftward shift among the realistic succession scenarios, and we would expect markets to reprice U.K. fiscal risk accordingly and quickly,” he said.
“His tenure as mayor perhaps offers a glimpse into his plans on a national level, i.e. a material loosening in spending, funded by borrowing and further taxation on capital and higher earners. The problem is that the U.K. can ill afford such an experiment given the wafer-thin fiscal headroom, upward trajectory in the debt-to-GDP ratio and anemic growth at a time of rising inflationary pressures and an ageing population.”
Prediction market platform Polymarket currently ranks Burnham as the most likely next Prime Minister of the U.K., with a 59% chance of taking over in 2026 compared to a 25% likelihood of Starmer staying in the job for the remainder of the year. That puts his perceived chances far above any other lawmaker who has been reported to be vying for the top job.
Former deputy prime minister Angela Rayner — also perceived as more left-leaning than Starmer — has been given a 7% chance on Polymarket, while Wes Streeting, who resigned from Starmer’s cabinet last month, has just a 1% chance.
Investors in U.K. sovereign debt, known as gilts, have appeared to be largely supportive of Starmer and his finance minister Rachel Reeves remaining in their roles, due to their commitment to bringing public borrowing and spending under control.
Nigel Green, CEO of consultancy deVere Group, told CNBC in an email on Wednesday that Burnham has “become a proxy for investor anxiety about U.K. debt, borrowing and gilt issuance.”
“Among Labour’s most prominent figures, Burnham is widely viewed in financial circles as the candidate most willing to challenge the constraints that have shaped economic policy in recent years,” he said, noting that the “Liz Truss episode remains burned into the market’s memory.”
In 2022, gilts sold off sharply when then-Prime Minister Truss tried to push through a raft of unfunded tax cuts, prompting emergency intervention from the Bank of England and ultimately leading to her resignation less than two months into the job.
“Burnham has moved to reassure markets in recent weeks, backing fiscal rules and seeking to calm fears that a future government under his leadership would depart sharply from the current framework,” Green told CNBC. “But the need in the first place for those reassurances underlines the challenge he faces.”
Daniela Hathorn, senior market analyst at Capital.com, told CNBC that although markets have begun to price a higher probability of a Labour leadership change and a potential Andy Burnham victory, U.K. assets do not appear to be fully reflecting that outcome.
“The recent rise in gilt yields, weakness in sterling and underperformance in domestically exposed sectors suggest investors are demanding a higher risk premium for political uncertainty, rather than making a definitive judgment about a future Burnham administration,” she said. “So to me, it seems that markets are reacting more to the possibility of policy change than to any specific fiscal agenda.”
If investors become convinced that a Burnham-led government is the most likely outcome, the market reaction could become more pronounced, she added.
James Smith, UK economist at ING, said that oil prices, not politics, are the main driver of gilts at the moment.
“I think even Andy Burnham is treading more carefully now as well,” he told CNBC in an interview. “I’m just a bit skeptical that we’re going to get really seismic changes to the fiscal story this year that will dramatically alter the course of Bank of England policy.”
— CNBC’s Joseph Wilkins also contributed to this report.
