British Prime Minister Sir Keir Starmer hosts the first roundtable of regional English mayors with Andy Burnham (R) Mayor of Greater Manchester, at Downing Street on July 9, 2024 in London, England.
Ian Vogler | WPA Pool | Getty Images
Andy Burnham has won a special election to the British parliament, clearing a path for him to challenge Prime Minister Keir Starmer for the party leadership.
Burnham, Labour’s former Greater Manchester mayor, defeated the Reform U.K. party by more than 9,000 votes, taking nearly 55% of the vote, in the election in Makerfield, in north-west England.
Burnham could now trigger a leadership challenge to Starmer as soon as next week, once he is formally sworn in as a Member of Parliament.
A prominent figure on the party’s left often dubbed Labour’s “King in the North,” Burnham said in his victory speech that Makerfield was “not a stepping stone” but a “touchstone,” promising to put neglected communities at the center of his politics.
In his victory acceptance speech, Burnham appeared to lay the groundwork for a leadership bid.
He said the win provides the “chance to build a new politics, based on unity and hope”, and an opportunity to turn “away from the path that takes us to a divided, dark politics of the kind we see in the United States,” adding “we must put the country back on the right path.”
U.K. fiscal discipline in the spotlight
While Burnham’s victory had largely been expected, the win raises several immediate questions for markets, said Kallum Pickering, chief economist at Peel Hunt.
Crucially, markets will be watching whether a Burnham government would stick to Labour’s existing fiscal rules and if his policy agenda risks adding to inflationary pressures.
Burnham last month moved to placate investors, rowing back on previous comments in which he suggested the U.K. was “in hock to the bond markets.”
Pickering said he did not expect Burnham to signal a break with the current framework on borrowing and debt — but he warned that investors may still demand extra compensation for inflation risk in U.K. government bonds.
“I’m expecting to see some inflation premium,” Pickering told CNBC’s “Europe Early Edition” on Friday, pointing to potential pressure across both short- and long-dated government bonds, known as Gilts.
U.K. government bond yields trade at a premium to developed market peers. This partially reflects political instability in recent years.
The timeline of any leadership challenge could also prove critical.
An orderly transition could limit market disruption if senior Labour figures conclude Starmer no longer commands support. But Pickering said a drawn-out contest between Starmer and Burnham may leave investors waiting for greater clarity on tax, spending and borrowing measures.
Pickering said a bigger question centers around who would serve as finance minister in a Burnham cabinet and how that would ultimately shape economic policy.
“The uncertainty for me is not over what happens next in Number 10, it’s what happens next door in Number 11,” Pickering said, referring to the traditional residence of Britain’s chancellor of the exchequer.
