Detail-lite Burnham speech unnerves jittery bond market
Andy Burnham risks sparking a bond market rout unless he sets out how he will fund the ambitious measures announced in his first set piece speech since Keir Starmer’s resignation, a group of bond investors have said.
Fixed income specialists told City PM that while the former Manchester mayor’s vow to stick with his predecessor’s fiscal rules will assuage jittery bond markets, borrowing costs will climb if he doesn’t lay out plans to rein in the UK’s excessive borrowing.
“The speech reinforces the view that a Burnham government would pursue a policy of higher taxes, increased spending, and greater borrowing,” David Zahn, head of European fixed income at Fanklin Templeton, said. “This would likely be inflationary at the margin and necessitate continued large gilt issuance, though further clarity on the specifics will need to await until he is in office.”
Andy Burnham unveiled plans for a ‘Number 10 of the North’ which he said would be oversee a historic devolution drive to bring about “growth in every postcode” in an eagerly anticipated speech after being elected the MP for Makerfield.
The remarks, delivered from a museum in Manchester, represented his first major set piece moment since he declared his candidacy to succeed Keir Starmer, after the Labour Prime Minister announced his intention to step down after Burnham’s by-election victory.
Bond market takes council housebuilding pledge in stride
As well as promising to shift power away from Westminster, the former mayor and culture secretary also vowed to unleash the largest state-funded council housebuilding spree since the 1950s. Addressing the Labour party faithful, he said that a council home was the “foundation of working class apsiration” when he grew up in the 1970s, and that his new No. 10 North would repurpose public vacant public land for the construction spree to “keep costs down”.
The Prime Minister in waiting also sought to play down fears he would relax Chancellor Rachel Reeves’ self-imposed spending rules, after two of his economic advisers suggested the fiscal straitjacket operated on too short a time horizon.
Simon French, chief economist at Panmure Liberum, said that failing to demonstrate fiscal prudence would have risked “a costly bond reaction”. But he also observed that Burnham’s commitment did not “rule out…. giving additional borrowing rights to public financial institutions such as the National Housing Bank and National Wealth Fund to secure off-balance sheet funding”.
“Given some of the ambitions Burnham stated in his speech for greater state control of water, housing, energy and transport assets, it would be hard to imagine that these are achievable without additional financing powers,” he added.
The fiscal rules promise helped government borrowing costs – already trading at a considerable premium compared to the UK’s peers – to remain broadly flat after Burnham’s speech. The yield on the 10-year gilts ended Monday’s session at 4.72 per cent, five basis points lower than a peak struck shortly before the Labour MP started speaking.
Alex Everett, investment director for rates management at Aberdeen Investments, said confirmation the PM hopeful would carry over previous spending pledges should “provide the gilt market with near-term reassurance that a Burnham government would be mindful of fiscal constraints as well as political priorities”.
He added: “With such a focus on investment and improvement spending, the re-affirmation of prudence was welcome at this relatively early stage.”