Andy Burnham can’t play games with the bond market because he’ll lose (Image: Getty)
Burnham may be popular today, but he enters Number 10 backed by just 24,000 voters in Makerfield. That doesn’t sound much of a mandate to me. Labour MPs voted for him, but he was the only name on the ballot. To be fair, he’s not the first prime minister to take office mid-Parliamentary term without winning a general election. Rishi Sunak, Liz Truss, Boris Johnson, Theresa May and Gordon Brown all did it. None ended well. I don’t have high hopes for Burnham either. He’s on a knife edge already.
Keir Starmer inherited a mess and made it dramatically worse. Labour MPs moan that he wasn’t left-wing enough, but they’ve got it back to front. His was the most left-wing government of my lifetime. It drove spending and tax to new highs while failing to curb the ballooning welfare bill, handing unions more powers and crushing business with red tape. The result is weaker growth, rising unemployment, higher debt and a serious risk that our finances are spinning out of control. Among the developed economies, no country pays more to borrow, because bond investors eye us with suspicion. And right now, a key warning signal is flashing red.
I keep my eyes glued to 10-year gilt yields. They offer a pretty good guide to what investors think of Britain’s economic prospects. Gilt yields are effectively the interest rate the government pays to borrow the money it needs to fund spending. When yields rise, investors demand a higher return for lending to the UK, pushing up the cost of funding new borrowing and refinancing existing debt.
This year, debt interest is expected to cost a staggering £110billion. Roughly £1 in every £10 the UK spends goes on servicing debt rather than public services. The higher gilt yields climb, the bigger that bill becomes.
That’s a real problem for Burnham because yields are climbing again. As he grabs the keys to Number 10, 10-year gilt yields have jumped again. They’ve just hit the 5% level that spooks bond investors.
This is desperate news for Burnham, because it completely limits his room for manoeuvre. He’s threatening to hike taxes again, but investors also want to see credible plans to control borrowing and tackle debt. Burnham looks set to do exactly the opposite. More spending would require more borrowing, more gilt issuance and higher interest costs. No wonder the bond market is nervous.
To be fair, rising gilt yields are all down to concern over Burnham. US president Donald Trump’s renewed assaults on Iran are driving up inflation and interest rates everywhere, not just here. But the UK is dangerously exposed because of its weak fiscal position. Germany’s 10-year government bond yield is around 3.15%. France and Italy pay more at 3.95%. They’re all comfortably below that 5% trigger.
Burnham has done one thing that markets welcome. Reports suggest he won’t make Ed Miliband chancellor, fearing that would trigger an outright bond market revolt. Even so, one wrong move could still trigger a bond investor backlash, with disastrous consequences. It could sink Burnham’s prospects even before he has begun. Without the authority that comes from winning a general election, he alone will carry the can. If Burnham isn’t careful, he could quickly end up even more unpopular than Keir Starmer.
Andy Burnham can’t play games with the bond market because he’ll lose (Image: Getty)
Burnham may be popular today, but he enters Number 10 backed by just 24,000 voters in Makerfield. That doesn’t sound much of a mandate to me. Labour MPs voted for him, but he was the only name on the ballot. To be fair, he’s not the first prime minister to take office mid-Parliamentary term without winning a general election. Rishi Sunak, Liz Truss, Boris Johnson, Theresa May and Gordon Brown all did it. None ended well. I don’t have high hopes for Burnham either. He’s on a knife edge already.
Keir Starmer inherited a mess and made it dramatically worse. Labour MPs moan that he wasn’t left-wing enough, but they’ve got it back to front. His was the most left-wing government of my lifetime. It drove spending and tax to new highs while failing to curb the ballooning welfare bill, handing unions more powers and crushing business with red tape. The result is weaker growth, rising unemployment, higher debt and a serious risk that our finances are spinning out of control. Among the developed economies, no country pays more to borrow, because bond investors eye us with suspicion. And right now, a key warning signal is flashing red.
I keep my eyes glued to 10-year gilt yields. They offer a pretty good guide to what investors think of Britain’s economic prospects. Gilt yields are effectively the interest rate the government pays to borrow the money it needs to fund spending. When yields rise, investors demand a higher return for lending to the UK, pushing up the cost of funding new borrowing and refinancing existing debt.
This year, debt interest is expected to cost a staggering £110billion. Roughly £1 in every £10 the UK spends goes on servicing debt rather than public services. The higher gilt yields climb, the bigger that bill becomes.
That’s a real problem for Burnham because yields are climbing again. As he grabs the keys to Number 10, 10-year gilt yields have jumped again. They’ve just hit the 5% level that spooks bond investors.
This is desperate news for Burnham, because it completely limits his room for manoeuvre. He’s threatening to hike taxes again, but investors also want to see credible plans to control borrowing and tackle debt. Burnham looks set to do exactly the opposite. More spending would require more borrowing, more gilt issuance and higher interest costs. No wonder the bond market is nervous.
To be fair, rising gilt yields are all down to concern over Burnham. US president Donald Trump’s renewed assaults on Iran are driving up inflation and interest rates everywhere, not just here. But the UK is dangerously exposed because of its weak fiscal position. Germany’s 10-year government bond yield is around 3.15%. France and Italy pay more at 3.95%. They’re all comfortably below that 5% trigger.
Burnham has done one thing that markets welcome. Reports suggest he won’t make Ed Miliband chancellor, fearing that would trigger an outright bond market revolt. Even so, one wrong move could still trigger a bond investor backlash, with disastrous consequences. It could sink Burnham’s prospects even before he has begun. Without the authority that comes from winning a general election, he alone will carry the can. If Burnham isn’t careful, he could quickly end up even more unpopular than Keir Starmer.