“Meh” was one way of viewing the reaction in the Square Mile and investors generally to the resignation of Keir Starmer and the lining up of Andy Burnham to replace him. Not the reaction you might have thought given the dramatic events playing out a short distance away in Westminster.
The FTSE fell slightly, then rose, while bond yields – and the all-important impact on UK borrowing costs – did the opposite. Hardly the nosebleed-inducing movements we’re used to with other seismic events.
One reason for what might appear on the outside as apathy is the slow car crash nature of what has unfolded, and the fact we’ve sadly been here a good few times before when it comes to the revolving door of Number 10. The other is the wait-and-see nature to having an Andy Burnham premiership, should it happen, and what it would mean for investors, plus every single one of us too.
There has been much written already about the ‘King of the North’, and what a future government under his leadership may bring about. However, Mr Burnham is seen as the most left-leaning, least market friendly of Sir Keir’s successors, against the likes of Angela Rayner, Ed Miliband and especially Wes Streeting.
His backing for bringing back industries such as water into public ownership are widely supported by voters, but have left some investors nervy about what it – and wider interventions in the business world – could herald.
However, the City is also conscious that Mr Burnham – for all his talk of change – does not want to rock the boat too much. It’s why he has committed to stick to the government’s fiscal rules, as well as Labour’s manifesto pledges not to raise income tax, national insurance and VAT.
Yet by doing so, he risks painting himself into the same corner that Rachel Reeves has done by limiting what can be done to boost the Treasury’s coffers to bring about the scale of change being demanded by so many people.
That drumbeat of calls for change stretches back to the aftermath of the 2008 banking crisis – in many cases before – when those responsible for bringing about such turmoil stepped away from the wreckage, while ordinary people were left to pay the price. And so it has gone on, with ordinary working people feeling like they are running to stand still. Voters will be looking to the next PM to show they’ve heard them, something Mr Burnham is adamant he has.
With limited scope for tax hikes and spending cuts, there must be no repeats of the own goals of the winter fuel payment and, it has to be said, the increase in the employers’ national insurance that has been another drag on the jobs market.
However, with such limited wriggle room, it is inevitable Mr Burnham and his Chancellor will have to continue borrowing. Far from ideal when the UK’s borrowing costs are already the highest of any G7 country and the national debt is heading towards the £3trillion mark.
Mr Burnham insists he we should not be in “hock” to bond the markets, from which the UK borrows, but he will need to tread a fine line. Whoever gets the keys to Number 10 will also be handed a poisoned chalice, in many ways.
Much will also depend on who their neighbour is, with rumours swirling that Chancellor Rachel Reeves’ job isn’t safe. Ms Reeves is seen as a credible Chancellor and replacing her could trigger a much bigger market reaction than we have seen today, with much depending on who gets the job instead.
So, the reaction from investors to the timetable for the changing of the guard at Number 10 may have been subdued – for now at least – but the new occupant of Downing Street will need to play a blinder if they are to win over voters, and prevent the country turning to Nigel Farage’s Reform UK instead.
Get it right – and barring economic calamities triggered by global events – then real change is possible. Get it wrong, and people feel even worse off, then the future doesn’t bear thinking about.
