Analysts say market is underestimating Burnham’s chances of beating Starmer

Andy Burnham, the front-runner to oust British Prime Minister Keir Starmer, abruptly canceled a conference call on Monday aimed at placating investors worried about his potential policy mix, the FT reported.

Burnham is not yet a sitting member of the British Parliament, but plans to stand in a by-election in Makerfield, northwest England, on June 18. If he wins the seat, he is widely expected to launch a formal challenge to unseat Starmer.

Starmer’s premiership is under intense pressure after the ruling Labor party suffered a crushing defeat in the UK’s local elections.

Political instability and Mr Burnham’s bid to return to Westminster have rattled UK government bond markets in recent weeks as hopes grow that Mr Burnham will move leftward from Mr Starmer and increase borrowing.

Britain has the highest borrowing costs in the G7, with long-term bond yields well above the key 5% benchmark.

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Burnham, who last week wrote an op-ed calling for the nationalization of key industries and strong regulatory control over Big Tech and AI, recently pushed back on comments he has made in the past that politicians should not “hamstring the bond market.”

According to the FT, Mr Burnham was scheduled to take part in a conference call hosted by political advisory firm Sygnum Global Advisors to discuss a range of issues including “balancing changes in fiscal policy with bond market pressures”.

Sources told the publication that the conference call was postponed just before it was scheduled to begin, and participants were told that it could not take place due to scheduling conflicts.

CNBC has reached out to Signum Global and Burnham’s office for comment.

Financial services firm Every said in an analysis published on Wednesday that markets are underestimating the impact of the Makerfield by-election and the ongoing political risks.

Matthew Ryan, the company’s head of market strategy, said Ebury’s basic policy was to end Starmer’s tenure in the short term through a formal leadership challenge.

Ryan assessed the market risk posed by Burnham’s victory as “very high.”

“In our view, Burnham’s victory represents the most significant leftward shift among realistic succession scenarios, and we expect markets to quickly reassess UK fiscal risks in response.”

“His tenure as mayor will likely give us a glimpse of his plans at a national level: deep spending relief, financed by debt and further taxation of capitalists and high earners. The problem is that the UK cannot afford such an experiment, given the very thin fiscal space, the upward trajectory of the debt-to-GDP ratio, and anemic growth amid rising inflationary pressures and an aging population.”

Starmer has vowed to continue in office despite calls from dozens of members of his own party to resign, but if a challenger receives enough support from incumbent politicians, a leadership vote will be left to party members.

Prediction market platform Polymarket currently rates Mr Burnham as the most likely to be Britain’s next prime minister, giving him a 59% chance of becoming prime minister in 2026, while Mr Starmer has a 25% chance of remaining in office until the end of the year. His chances therefore far outweigh the other MPs reportedly vying for the top spot.

Former deputy prime minister Angela Ryner (also seen as more to the left of Starmer) has a 7% chance of winning on the polymarket, while Wes Streeting, who resigned from Starmer’s cabinet last month, has just a 1% chance of winning.

Investors in British government bonds, known as Gilt, appear to be largely supportive of Mr Starmer and Chancellor of the Exchequer Rachel Reeves remaining in office due to their pledge to bring public borrowing and spending under control.

Nigel Green, CEO of consultancy De Vere Group, told CNBC in an email on Wednesday that Burnham “has become a proxy for investor concerns about UK debt, borrowing and gold issuance.”

“Among Labour’s most prominent figures, Mr Burnham is widely seen in financial circles as the candidate most willing to challenge the constraints that have shaped economic policy in recent years,” he said, adding: “The Liz Truss episode remains seared in market memory.”

In 2022, then-Chancellor Truss tried to force through a massive tax cut for which he had no funding, causing the gold coin to plummet, prompting emergency intervention from the Bank of England, and ultimately forcing him to resign less than two months into office.

“Mr. Burnham has made moves to reassure markets in recent weeks, supporting fiscal rules and trying to allay concerns that a future administration under his leadership would depart significantly from the current framework,” Green told CNBC. “But the fact that he needs that reassurance in the first place highlights the challenge he faces.”

Daniela Hathorn, senior market analyst at Capital.com, told CNBC that while markets are starting to price in the increased likelihood of a Labor leadership change and the possibility of an Andy Burnham victory, UK assets do not appear to have fully reflected that outcome.

“The recent rise in gold yields, the weakening of the pound and the underperformance of domestically exposed sectors suggests that investors are seeking a higher risk premium for political uncertainty, rather than making a final judgment on a future Burnham administration,” he said. “So it seems to me that markets are reacting more to potential policy changes than to specific fiscal policies.”

He added that the market reaction could become more pronounced once investors become convinced that a Burnham-led government is the most likely outcome.

James Smith, UK economist at ING, said oil prices, not politics, were the main factor pushing up gold prices at the moment.

“I think Andy Burnham is also acting more cautiously now,” he said in an interview with CNBC. “I’m a bit skeptical that there will be a really dramatic change in the fiscal story this year that would dramatically change the Bank of England’s policy direction.”

— Joseph Wilkins of CNBC also contributed to this report.