Rabobank's Senior FX Strategist Jane Foley reports that Andy Burnham is expected to become the United Kingdom's Prime Minister on July 20, with no significant challengers anticipated before the July 17 Labour leadership candidacy deadline [1]. Foley notes that Burnham's popularity within the Labour Party is seen as a positive factor, especially given the party's internal divisions under previous leader Starmer [1]. However, Labour is currently polling in third place behind Reform and the Tories, according to YouGov’s weekly voting intentions poll [1].
Foley highlights that the UK's public finances remain tight, with the tax burden at a post-war high. Recent increases to companies’ national insurance contributions and minimum wages by Chancellor Reeves have been cited by businesses as contributing to weaker UK employment [1]. Burnham has pledged to adhere to Labour’s 2024 election manifesto, which rules out tax hikes on workers, thereby limiting his fiscal options and potentially causing anxiety in the gilt market, despite assurances that Reeves’s fiscal rules will be maintained [1].
The market is closely watching Burnham's choice for Chancellor, as this appointment is seen as a key indicator of his policy direction and will serve as a test for market sentiment [1]. Foley suggests that while the smooth leadership transition may reassure markets, ongoing fiscal constraints and uncertainty over funding for Burnham’s agenda could continue to weigh on investor confidence [1].
CONCLUSION
Markets are cautiously optimistic about Burnham's likely uncontested ascent to Prime Minister, appreciating the smooth transition but remaining wary of fiscal constraints and Labour's weak polling. The choice of Chancellor and clarity on fiscal policy will be critical for market sentiment in the coming weeks.