Mayor of Greater Manchester Andy Burnham.
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Andy Burnham, the front-runner to oust British Prime Minister Keir Starmer, abruptly canceled a call on Monday aimed at calming investors nervous about his potential policy mix, FT informed.
Burnham – who is not yet a sitting member of the UK Parliament – will contest a by-election in Makerfield, north-west England, on June 18. If he wins the seat, it is widely expected that he will mount a formal challenge to take over Starmer’s position.
Starmer’s post as Prime Minister is under great pressure after the ruling Labor Party’s crushing defeat in Britain’s local elections.
Political instability and Burnham’s bid to return to Westminster have caused jitters in the UK government bond market in recent weeks, amid expectations he would move left from Starmer and increase borrowing.
The UK has the highest borrowing costs in the G7, with yields on its long-term gilts well above the crucial 5% threshold.
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Burnham, who last week wrote an op-ed calling for the nationalization of key industries and stronger regulatory controls on Big Tech and AI, has said in the past that politicians “shouldn’t get hung up on bond markets” — comments she recently walked back.
According to the FT, Burnham was scheduled to take part in a call hosted by political consultants Sygnum Global Advisors to discuss various talking points, including “balancing fiscal policy changes with bond market pressure.”
Sources told the publication that the call was postponed shortly before it was to begin, with participants told that it could not be held due to a scheduling conflict.
CNBC contacted Sygnum Global and Burnham’s office for comment.
Markets are underestimating UK political risk
In an analysis published on Wednesday, financial services firm Ebury said markets are underestimating the Makerfield by-election results and ongoing political risk.
According to Matthew Ryan, the company’s head of market strategy, Ebury’s core focus is that Starmer’s tenure will end in the near term through a formal leadership challenge.
Ryan described the market risk posed by Burnham’s victory as “extreme.”
He said, “In our view, a Burnham victory would represent the most significant leftward shift among realistic succession scenarios, and we would expect markets to reassess UK fiscal risk accordingly and quickly.”
“His tenure as mayor perhaps offers a glimpse of his plans at the national level, that is, a considerable relaxation of spending, funded by borrowing and capital and higher taxation on high earners. The problem is that Britain cannot afford such an experiment, given the tight fiscal space, the upward trajectory in the debt-to-GDP ratio and weak growth at a time of rising inflationary pressures and an aging population.”
Prediction market platform Polymarket currently ranks Burnham as the next UK Prime Minister with a 59% chance of taking over in 2026, while Starmer has a 25% chance of remaining in the job for the rest of the year. This puts his projected chances much higher than any other MLA who is reported to be in contention for the top post.
Former Deputy Prime Minister Angela Rayner – who is considered more left-leaning than Starmer – is given a 7% chance on Polymarket, while Wes Streeting, who resigned from Starmer’s Cabinet last month, has only a 1% chance.
Investors in UK sovereign debt, known as gilts, have largely appeared to support Starmer and her Finance Minister Rachel Reeves remaining in their roles, due to her commitment to getting public borrowing and spending under control.
Nigel Green, CEO of consultancy Deavere Group, told CNBC in an email on Wednesday that Burnham “has become a proxy for investor concern about UK debt, borrowing and gilt issuance.”
“Among Labour’s most prominent figures, Burnham is widely seen in financial circles as the candidate most willing to challenge the constraints that have shaped economic policy in recent years,” he said, adding: “The Liz Truss affair remains etched in the market’s memory.”
In 2022, when then Prime Minister Truss tried to push through unfunded tax cuts, gilts sold off sharply, leading to emergency intervention from the Bank of England and ultimately leading to his resignation from the job in less than two months.
“Burnham has spent recent weeks trying to reassure markets, support fiscal rules and calm fears that a future government under her leadership would depart sharply from the current framework,” Green told CNBC. “But the need for those assurances first underlines the challenge they face.”
Daniella Hathorn, senior markets analyst at Capital.com, told CNBC that although markets have begun to price in the high probability of a Labor leadership change and a potential Andy Burnham victory, U.K. assets do not fully reflect that outcome.
“The recent rise in gilt yields, weakness in sterling and underperformance in domestically exposed sectors suggests that investors are demanding a higher risk premium for political uncertainty rather than making definitive decisions about a future Burnham administration,” he said. “So to me, it seems like markets are reacting more to the possibility of a policy change than to any specific fiscal agenda.”
If investors are convinced that a Burnham-led government is the most likely outcome, the market reaction may be more pronounced, he said.
James Smith, UK economist at ING, said oil prices, not politics, are the main driver of gilts at the moment.
“I think Andy Burnham is also proceeding more cautiously now,” he told CNBC in an interview. “I have little doubt that we are going to have a really seismic change in the fiscal story this year that will dramatically change the course of Bank of England policy.”
— CNBC’s Joseph Wilkins also contributed to this report.