Market reaction
Financial markets responded promptly to Wednesday’s reports. The 10-year gilt yield eased to around 4.93%, with UK bonds outperforming European counterparts, while sterling rose approximately 1.1% against the dollar and reached a one-year high against the euro. Lee Hardman, senior currency analyst at MUFG, said the move reflected relief that the Treasury would not go to a candidate from the left of the party, according to IBTimes UK.
That response fits the pattern observed since the leadership transition began. The market’s initial reaction to Keir Starmer’s resignation saw the 10-year gilt spike to 5.137% — its highest since 2008 — when Burnham’s candidacy first gained traction in May, before settling as his route to Number 10 became uncontested. Gilt yields hit further multi-decade highs — an 18-year high on the 10-year and a 28-year high on the 30-year — amid speculation that Ed Miliband, a key architect of Burnham’s leadership campaign, could be handed the Treasury role.
Why the chancellor appointment matters more
Susannah Streeter, chief investment strategist at non-advisory investment broker Wealth Club, has previously told Mortgage Introducer that “sustained elevated gilt yields push up swap rates and, in turn, fixed-rate mortgage pricing,” in the context of why the chancellor pick carries more weight than Burnham’s own arrival at Downing Street. Mahmood, who sits on the right of the Labour Party and became home secretary last year, has no economic brief on her ministerial record.
Nigel Green (pictured right), chief executive of global financial advice firm deVere Group, characterised the prospective appointment in broadly positive terms for markets. “Shabana Mahmood or Yvette Cooper would send a fundamentally different signal,” he said. “Both are viewed as pragmatic and disciplined, and neither is expected to tear up the fiscal rules that have kept gilts comparatively stable through the uncertainty of a leadership change.
“Markets don’t need a radical Chancellor right now. They need continuity and credibility, and either name would, potentially, deliver both.”