Bond markets are on high alert as fresh reports suggest that Manchester mayor Andy Burnham and health secretary Wes Streeting are preparing leadership bids to challenge Sir Keir Starmer. City banks and analysts at Deutsche Bank and Jefferies have flagged the risks of a change in leadership and the potential for looser fiscal rules, which could impact government borrowing costs.
Market Reactions to Leadership Speculation
Deutsche Bank’s Sanjay Raja noted that the risk premium on gilts—the additional cost to the government in debt payments due to concerns over fiscal stability—has increased again. He added that some reports suggesting efforts from the soft-left wings of the Labour Party to introduce welfare reforms could be seen as positive. Investec analysts said both bond markets and the pound sterling could be swayed by leadership stabs from left-leaning candidates. Jefferies put out a note suggesting the upcoming local elections are an “unusually important” event for markets and judgments on fiscal policy.
Burnham’s Potential Impact
Analysts have warned that Burnham’s comments about the government being “in hock to the bond markets” and his suggestion to introduce a carve-out in fiscal rules for extra defence spending would make him a threat to the current gilt position. Burnham is reportedly planning a return to Westminster “within weeks,” according to The Guardian, which could pose a threat to Starmer’s premiership. He was earlier blocked by Labour’s National Executive Committee (NEC) from standing in the Gorton and Denton by-election due to concerns about costs and potential defeat. The Green Party eventually won that seat, with Labour coming third.
Streeting’s Reported Backing
In separate reports by The Telegraph and The Spectator, Streeting has reportedly secured the backing of more than 81 MPs—the minimum required for a leadership bid—to challenge Starmer. Streeting attempted to ease speculation on an MPs group chat, writing: “There is currently an industry in fishing expeditions by lobby journalists at the moment. Don’t feed it. It undermines all of us fighting elections locally.” Constituencies across Merseyside and Greater Manchester are reportedly among those where MPs are prepared to stand aside for Burnham, who is lining up an “impressive” candidate to replace him as mayor.
