Investors await credible economic plan as Burnham prepares to take charge

Investors are looking for a credible economic plan as Andy Burnham prepares to take over from Keir Starmer as Prime Minister.

Starmer announced his resignation in a statement outside Downing Street on Monday, ending less than two years in office after taking power in July 2024.

Burnham, the Greater Manchester mayor, is widely expected to succeed him after winning the Makerfield by-election on Friday, a result that returned him to Parliament and cleared a path to the Labour leadership.

Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, said gilt yields had risen in recent days as the political picture resolved itself, and that markets would want clarity on how the next government intends to govern.

“Gilt yields have crept up in recent days as the political picture resolves itself,” Carter said. “With UK still at a yield premium to developed market peers, investors and markets will want to see a credible economic plan that can help ignite growth and put the public finances back onto surer footing.”

Carter said markets were wary of Burnham’s previous policy positions and would prefer to see his approach set out through a leadership contest rather than a coronation.

He pointed to difficult decisions on welfare and defence spending, each of which he said was likely to affect gilts and wider UK markets.

He added that, based on the economic team Burnham had been assembling and the absence of any apparent push for a new mandate, the direction of government policy was likely to continue, with cabinet appointees scrutinised for their growth-friendly credentials.

Tax and borrowing in focus

Carter said last week’s borrowing figures underlined the scale of the fiscal position the next Prime Minister would inherit.

“Last week’s borrowing figures highlight just how messy this inheritance will be, and as such, there is unlikely to be any immediate silver bullet to the UK’s economic woes,” he said.

Without a new mandate, he said, the government was likely to make further adjustments to personal taxation around the edges, which would weigh on growth.

The announcement follows weeks of pressure on Starmer across the parliamentary party. Former Health Secretary Wes Streeting, who resigned in May, claimed last week to have secured the backing of the 81 Labour MPs required to trigger a formal leadership contest.

Several ministers left the government in recent weeks, including the two most senior defence officials, who resigned on 11 June citing concerns over funding for the Defence Investment Plan.

Labour’s standing had deteriorated at the ballot box. In last month’s local elections the party lost more than 1,100 council seats across England, while Reform UK, led by Nigel Farage, gained more than 1,450.

More than 80 Labour MPs publicly called on Starmer to step down in the aftermath.

Attention now turns to the process for choosing a successor. Labour’s rules ordinarily require a formal leadership election, though the timeline can vary, and a senior cabinet member could be asked to serve in an acting capacity in the interim.

Burnham, 56, is among the figures named as a potential successor, alongside Streeting.

Now read: Keir Starmer announces resignation as Prime Minister