Financial markets may be underestimating the risks associated with Andy Burnham’s expected victory in Thursday’s Makerfield by‑election, according to currency analysts.
Strategists at foreign‑exchange firm Ebury warned that investors have become complacent about the potential political and fiscal implications of the contest.
Matthew Ryan, Ebury’s head of market strategy, said markets were watching the outcome closely because of its potential influence on perceptions of Labour’s future direction.
“Andy Burnham is the candidate that currency markets will be watching most closely, and with good reason — he is the clear and obvious choice to be named the next prime minister,” Mr Ryan said, attributing the view to market sentiment rather than making a prediction.
Ebury said an Andy Burnham victory could prompt investors to reassess expectations for UK fiscal policy and Government borrowing, with markets likely to view a Burnham‑led administration as signalling a shift towards higher public spending and taxation.
Mr Ryan said such expectations could place downward pressure on sterling as investors brace for “a more expansionary fiscal stance, larger bond issuance and another increase in the tax burden”.
George Vessey, FX analyst at Convera, also highlighted the potential implications for financial markets, noting that an Andy Burnham win would return the former Greater Manchester mayor to Westminster and could reignite debate over Labour’s future leadership.
Analysts said heightened political uncertainty can increase risk premiums in financial markets, affecting both currency valuations and government borrowing costs.
Andy Burnham victory could weigh on pound and UK bonds, currency analysts warn
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GETTYEbury stressed that investor concerns would focus less on the by‑election result itself and more on any future policy positions relating to spending, taxation and borrowing.
Prediction markets currently place Mr Burnham as the clear favourite, with implied probabilities of 70–80 per cent, though analysts said much of this expectation is already reflected in asset prices.
Investor attention is expected to shift quickly to any policy signals that follow the vote.
Reports on Monday suggested Mr Burnham could support proposals for a form of basic income for vulnerable individuals, set against a welfare budget of around £323billion for 2025–26.
UK Government bonds 10 year gilt yields
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TRADING ECONOMICS
Mr Burnham has also previously backed maintaining the pension triple lock and increasing housebuilding — policies analysts said would be scrutinised by investors seeking clarity on future public spending commitments.
Noah Buffam, strategist at CIBC Capital Markets, noted that Mr Burnham has recently moderated his position on fiscal rules. He said any significant market reaction may depend more on future political developments than on the by‑election result alone.
Ebury said sterling’s gains could remain limited even if there is no immediate change in Labour’s leadership.
Mr Ryan pointed to ongoing uncertainty surrounding the political outlook as a factor weighing on sentiment.
“Even if Keir Starmer survives, we think that GBP upside will be capped,” he said.
CIBC estimated that an Andy Burnham victory could push EUR/GBP up by around 0.2 per cent, while a surprise defeat could trigger a 0.8 per cent move in the opposite direction.
UK Government bonds continue to trade at higher yields than many comparable G7 nations, with economists attributing part of that premium to political uncertainty and investor concerns over the future path of fiscal policy.
Financial markets are now expected to monitor both the outcome of Thursday’s by‑election and any subsequent policy signals emerging from Westminster.