City investors have reacted positively to Andy Burnham’s first major policy speech, with government borrowing costs dipping and the pound rising as the Makerfield MP set out his vision for the UK ahead of his expected coronation as Labour leader and prime minister.
On Monday, Burnham delivered the speech outlining what he called “the biggest rebalancing of power our country has ever seen” – promising dramatic devolution powers, a new Downing Street team based in Manchester, the biggest council house building programme since the post-war period, a “complete rethink” of education, and cuts to welfare. The speech connects directly to the devolution agenda described by commentators as the biggest power shift in a generation, with Burnham declaring that “the days of Whitehall blocking devolution are over for good.”
What the markets did
Following the speech, UK gilt yields dipped slightly. The interest rate on 30-year UK bonds fell 2 basis points, having been up around 1 basis point before he spoke. It is a small move, but falling bond yields are typically read as a sign that investors are more confident about holding a country’s debt – the opposite of what might have been expected given the speculation that bond markets viewed Burnham with suspicion.
Sterling rose slightly during the speech and ended the day up over a third of a cent against the US dollar, at $1.3240.
Why investors weren’t spooked
The reason markets responded calmly comes down largely to one specific commitment: Burnham explicitly tied his agenda to “the discipline of our current fiscal rules” – the framework Rachel Reeves established to reassure bond markets after the Truss crisis.
Alex Everett, investment director for rates management at Aberdeen Investments, told the Guardian that Burnham’s “ambition to reduce the UK’s welfare bill” was also read as a positive signal. “An assured and optimistic speech from Burnham, albeit light on detail,” he said. “Most importantly for gilt investors, he underpinned his announcements with a renewed commitment to fiscal responsibility. This was supported by an ambition to reduce the UK’s welfare bill – a politically difficult topic which signals some willingness to take challenging decisions. While the speech was growth-focused, these offsets should provide the gilt market with near-term reassurance that a Burnham government would be mindful of fiscal constraints as well as political priorities. With such a focus on investment and improvement spending, the re-affirmation of prudence was welcome at this relatively early stage.”
This is the context for Gary Stevenson’s recent explainer on bond markets, in which he argued that media coverage blaming Burnham personally for bond market volatility over recent months was largely nonsense – global yields had been moving on Iran war uncertainty, not domestic politics. Monday’s reaction suggests the market relationship with Burnham is, if anything, more stable than the speculative coverage implied.
A speech that pleased both sides
What is notable is that Burnham appears to have managed something difficult: pleasing both progressive economists and City investors simultaneously. Danny Sriskandarajah, chief executive of the New Economics Foundation, welcomed the speech in markedly different terms to Everett, but with similar enthusiasm.
“This morning’s speech sets out a hopeful vision for people-powered success,” he said. “Three things stood out as particularly welcome: calling time on trickle-down economics, upping the need for public intervention when markets fail and shifting power to people and communities. At a time of rising inequality it is good to hear Andy Burnham go beyond aggregate growth being a defining mission and instead focus on good quality, equitable growth. His ambition to set out a 10 year plan for bringing essential services like water, housing, energy and transport back under public control is much needed. And the promise to modernise an insufficiently accountable state and nurture a more collaborative politics will be welcome at a time of falling trust and growing division. None of this will be easy and the proof will be in the policy, but it has the makings of the economic and political reset the UK needs.”
The tension underneath
The positive reaction from both camps masks a tension that has been building since Mariana Mazzucato’s interview last week, in which she warned Burnham against beginning “exhausted” and argued that genuine public investment requires going beyond reassurance rhetoric. Louise Haigh’s call for Capital Gains Tax increases and looser fiscal rules for the National Wealth Fund sits in some tension with the market-friendly fiscal prudence that reassured investors on Monday. And Burnham’s own Newsnight comments on the fiscal rules question suggested he is still working out exactly how far he is willing to push against the constraints Reeves established.
For now, the market’s verdict is calm reassurance rather than alarm. Whether that holds once the specifics of welfare cuts, tax changes and the devolution settlement are worked through in detail – rather than gestured at in a speech described even by sympathetic investors as “light on detail” – is the question that will determine whether Monday’s gilt yield dip becomes a lasting trend or a brief honeymoon.
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