Pound Tumbles as Burnham Escalates Labour Revolt Against Starmer

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Or sign-in if you have an account.Andy Burnham arrives at FC United for a charity football match at Broadhurst Park in Moston, England on May 8. Photo by Ryan Jenkinson /Photographer: Ryan Jenkinson/Get(Bloomberg) — A potential challenge to UK Prime Minister Keir Starmer’s leadership from one of the nation’s most popular Labour Party politicians sent the pound tumbling. THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe challenge by Manchester Mayor Andy Burnham cast doubt on the future of Starmer’s government and its efforts to rein in the national debt. Sterling fell for a fifth day Friday, down 0.4% to $1.3356, heading for its worst week since November 2024Burnham said he was seeking to run for Parliament, raising the prospect that he will mount an effort to replace Starmer. It was the latest affront to the prime minister since his Labour Party suffered a significant defeat in last week’s local elections, which has led to growing calls for his resignation.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe prospect of Burnham as the nation’s leader is likely to rattle UK bond investors, who have been concerned about potential increases in spending that would boost the issuance of new debt. Traders were spooked last year when Burnham complained about the country being “in hock” to the bond market, though he said the remarks were taken out of context.The news about Burnham’s plans came after the gilt market closed. But futures pointed to a rise in government bond yields when trading resumes at 8 a.m. in London on Friday.“Markets are now seriously considering the end of Starmer’s time in office, now that there is a clear route for Burnham to return to Parliament,” said Nick Rees, head of macro research at Monex Europe Ltd.The challenge to Starmer — which was brought on by inroads made by the upstart populist party, Reform UK — is the latest bout of political instability for the country, which has had four prime ministers in less than four years. That’s eroded investor confidence in Europe’s second-biggest economy.The latest bout of instability is likely to be particularly worrisome to gilt investors. They have seen Starmer and his Chancellor of the Exchequer, Rachel Reeves, as more committed to keeping borrowing in check than their potential replacements. Gilts — which are also being battered by a global surge in energy costs from the Iran war — have previously underperformed during prior periods when Starmer’s ability to hold onto power was in doubt. Thirty-year gilts currently yield nearly 5.7%, well above the UK’s European and developed-world peers.Burnham’s announcement was seen as a significant challenge for Starmer. The Manchester mayor is the only senior UK politician to hold a net positive approval rating among voters, according to YouGov, and is the preferred candidate for many on the left of the Labour Party. The pound fell 0.9% to $1.3403, the lowest since April 13, late Thursday, in the biggest slide since early February. It also declined by the most since March against the euro. While Starmer has vowed to defend his position, on Thursday evening he indicated to Labour Party members of Parliament that he wouldn’t block Burnham from running for election to the chamber, a key requisite for mounting a leadership challenge.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“Burnham has put forward more eye-catching proposals on tax and spending that could put the public finances at greater risk. These include halving the basic rate of income tax and increasing borrowing to fund defense spending. Still, it remains unclear how the constraints of office might temper his ambitions.”—Ana Andrade, an economist covering the UK and the euro area for Bloomberg Economics in LondonThe political developments are promising to increase volatility in UK markets. While the moves have been relatively contained up to now, options traders have been hedging against the risk of further declines in the nation’s currency.“We expect the pound to remain under pressure against the dollar and euro as political friction plays out in the UK,” said Jayati Bharadwaj, head of FX strategy at TD Securities.The knee-jerk decline in the pound after Burnham’s announcement may also play a part in the UK leadership debate, especially if it’s followed by an underperformance in gilts on Friday. Ever since former Prime Minister Liz Truss’ mini-budget sparked a crisis that sent the pound to a record low and yields surging, the bond market has played a major role in UK political discourse.Starmer and Reeves have defined their agenda by a commitment to self-imposed fiscal rules designed to reassure investors they won’t borrow too much. That stance has curbed the government’s capacity to spend as generously on public services as many in the Labour Party would like, fueling discontent among lawmakers and increasing the popularity of Burnham.Last month, Burnham floated additional borrowing to fund defense spending that would sidestep those fiscal rules. Dominic Bunning, a strategist at Nomura, said he’ll be watching for any comments from Burnham regarding his fiscal stance in the coming days. “If the selloff continues, even steadily, it will be a fair question to ask him why this announcement caused it and whether he wants to re-frame his thinking about being ‘in hock’ to the bond market,” Bunning said. “When he’s still in campaign mode he might not want to soften the tone, even if many weeks down the line he is pressured into it on becoming leader.”—With assistance from George Lei, Anya Andrianova, Ellen Milligan and Alex Wickham.(Updates prices in second paragraph.)Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.