𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Andy Burnham cancelled a call on short notice with a group of hedge fund leaders this week over what was due to be a discussion around “bond market pressure”.

The mayor for Greater Manchester is reportedly keen to challenge for Labour leadership, should he win a by-election, but has been seen by financial markets as potentially the least-fiscally tight option who could replace Keir Starmer.

That matters because the bond markets have a habit of selling gilts – bonds issued by the UK – when they lose faith in the fiscal policy or when borrowing increases dramatically, which in turn drives up the yield. That then results in far higher borrowing costs for the government.

Burnham had been due to speak to hedge fund managers over the matter, with Signum Global Advisors hosting the call, but the Financial Times reported it was cancelled at short notice over a schedule conflict.

It is expected that the call will be rearranged, with Angela Rayner also having undergone a similar conversation with City leaders in March, to reassure them there would be no intention to pivot away from the manifesto pledge to reduce debt as a share of GDP.

Chancellor Rachel Reeves has made several changes to tax and other areas of national finance over the past 18 months in a bid to bring down that level of debt, though her efforts have been hampered by – among other things – still high inflation, a creeping level of economic growth and, most recently, the Iran war sending energy costs higher once again, which will feed through into yet more inflationary pressures.

Burnham last year said the UK had to move “beyond […] being in hock to the bond markets”, but has since said he was misinterpreted and, at the launch of his by-election campaign, said what he meant was that there was “a way of running the economy over a long period of time where we just gave up control of the fundamental drivers of the economy.”

Meanwhile, the Bank of England (BoE) governor Andrew Bailey says the sell-off of bonds will continue for a further year or two, as the central bank looks to reduce its balance sheet.

“We are on glide path to the equilibrium but I can’t tell you with any precision what the equilibrium is,” he said, adding that another £100-200bn more could yet come off the balance sheet.

The BoE has already reduced it from £1tn to £650bn, in no small part by offloading government bonds bought during the Covid crisis.