Andy Burnham's potential return to Parliament has sent shockwaves through City investors, with many warning that a win in the Makerfield by-election could have far-reaching implications for financial markets. As the outcome hangs in the balance, analysts are divided on what a Burnham premiership would mean in practice – and who he might choose as his Chancellor of the Exchequer.
The stakes are high because a Labour leadership challenge is seen as all but inevitable if Mr Burnham wins the seat. His popularity among party members and voters alike has been consistently demonstrated in polls, and he has not ruled out a bid for the top job. However, Sir Keir Starmer's warnings about the potential disruption to the Greater Manchester mayoralty should Mr Burnham resign from his current role upon taking the parliamentary seat have been noted.
City analysts are fretting that a shift towards a more left-leaning economic agenda could be on the cards without a fresh electoral mandate – and this would likely unnerve traders. Kallum Pickering, Deputy Head of Research at Peel Hunt, highlights the risks: "We believe the downside risks to financial markets are skewed" in such a scenario.
This comes as 30-year UK gilt yields have surged to their highest levels since 1998 following the May local elections, amid calls for Sir Keir Starmer's resignation. However, not all analysts anticipate a repeat of the significant market swings seen then. Modupe Adegbembo, an economist at Jefferies, suggests that investors have largely priced in the risks associated with a potential Burnham premiership.
The real concern for markets, she notes, is who Mr Burnham would choose as his Chancellor. If he retains Rachel Reeves or appoints figures from the right of the Labour party – such as Wes Streeting or Shabana Mahmood – it could signal continuity and bolster market confidence. On the other hand, choosing a figure from the 'soft-left', like Ed Miliband, could weigh on investor confidence.
Lindsay James, Investment Strategist for Quilter, warns that Mr Miliband would be perceived as a risky choice by bond traders due to his reputation for prioritising objectives over maximising growth within existing fiscal constraints. Conversely, some researchers believe that Mr Burnham's recent policy proposals are "net neutral" and that his election could even improve market perception of the UK – if he brings stability and visibility to the political landscape.