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Andy Burnham replacing Sir Keir Starmer would be the “biggest risk to sterling” and Government bonds, according to a hard-hitting analysis. Financial services firm Ebury has sounded the alarm about the threat to the pound from the “Labour leadership crisis”.

The warning comes ahead of the June 18 election in Makerfield, which could be a springboard for Mr Burnham re-entering Parliament and launching a leadership bid. The analysis says a Burnham victory would “represent the most significant leftward shift”. Ebury classed the Mayor of Greater Manchester as a “high” market risk and said there is a 60% chance of him taking over.

The analysis states: “We think that a win for Burnham here would more or less clear his path to Downing Street given that he appears to hold more than enough support among Labour members and MPs in order to trigger and, more importantly, win a leadership contest. While this would not automatically install him as prime minister, Keir Starmer would almost certainly tender his immediate resignation at this point.”

Mr Burnham’s team last month attempted to calm the markets by saying that he would stick to the Government’s spending limits. But Ebury identified him as the “biggest risk to sterlings and gilts due to expectations of higher spending, borrowing and taxation”.

Ebury said there was a 14% chance of Energy Security Secretary Ed Miliband succeeding Sir Keir and warned this was a “high” risk scenario, with “increased public spending” expected. Former deputy prime minister Angela Rayner has been given a 9% chance of becoming PM and is considered a “moderate to high” risk as she is “likely to pursue a more interventionist economic agenda”.

Former health secretary Wes Streeting is deemed a “low” market risk and the “most market-friendly candidate and closest to the current policy status quo”.

Ebury describes the Makerfield by-election as a “a critical risk event”.

The analysis cautions: “The infamous Liz Truss mini-budget episode in 2022 offers a demonstration of how quickly UK assets can reprice when fiscal credibility is in question, with moves typically swift and brutal on the way down, and slow and incomplete on the way up.”

Setting out the threat to the pound, it states: “The by-election will be a complex event for sterling. A strong Burnham performance would raise the fiscal risk, while a poor one would deepen the sense of Labour’s collapse – neither is a particularly palatable result for UK markets.”

Highlighting the dangers of a Miliband premiership, it warns: “The former Labour leader’s record for large-scale, state-directed capital expenditure as the primary vehicle for the energy transition adds an extra layer of risk.”

The arrival of Ms Rayner in Downing Street would result in “a meaningful shift to the left and heightened fears over fiscal stability”.

In contrast, it said Mr Streeting is the “clearest market-friendly candidate in the field and the closest to the status quo”. The analysis says he has “explicitly avoided the tax-and-spend framing favoured by the left”.

Mr Burnham’s campaign was invited to comment.