Andy Burnham Commits To Existing Fiscal Rules To Calm Bond Markets

Andy Burnham, the Greater Manchester mayor, sought to calm bond markets by committing to sticking to the government’s existing borrowing limits, known as its fiscal rules, after he had suggested they might be changed, for example by exempting rises in defence spending.

“- Published Greater Manchester Mayor Andy Burnham has committed to sticking to the government's existing borrowing limits, known as its fiscal rules”

BBC

Burnham told ITV News on the weekend, "I have never said you can just ignore the bond markets," and he said, "I said that politicians have placed Britain in hock because of the way in which we lost control of our finances and public spending."

BBC

On Monday, the Burnham campaign confirmed to BBC News that changing the fiscal rules was no longer an option, and a former minister and Burnham backer said: "He has committed to the rules as they are. It is totally essential."

The BBC linked the pressure on UK bond yields to the US-Israel war with Iran and prospects of a prolonged blockade in the Strait of Hormuz, which it said drove up expectations of inflation and interest rates across the G7.

The BBC also said the main fiscal rules limit how much the government can borrow to fund day-to-day public spending and compel the government to ensure that debt as a share of national income is falling by the end of the Parliament, expected in 2029.

CNBC said U.K. gilt yields steadied on Monday after coming under heavy selling pressure last week, with the yield on the benchmark 10-year bond standing at 5.15% and easing by 2 basis points.

CNBC reported that last Friday the yield on 20 and 30-year gilts rose to their highest levels since 1998, and that on Monday the interest rate on the 30-year gilt remained elevated but fell 2 basis points to 5.83%.

City AM

In the same CNBC report, Lizzie Galbraith, senior political economist at Aberdeen, said an "extra risk premia" has been attached to U.K. gilts, pointing to uncertainty around whether a leadership contest would be underway and how policy might shift.

The BBC also said Mohamed El-Erian told BBC News that Burnham’s comments contributed to "this morning's outperformance of the UK bond market" and that it made "total sense to clarify his approach" during global bond market turbulence.

CNBC added that Deutsche Bank analysts said investors "are likely to fear higher fiscal spending with Burnham as PM," even after he walked back comments about being in hock to the bond markets.

The BBC said the main force behind rising government bond yields has been the US-Israel war with Iran and prospects of a prolonged blockade in the Strait of Hormuz, and it framed the political uncertainty around Burnham’s leadership bid as a sensitive time for borrowing expectations.

The BBC reported that Conservative shadow chancellor Mel Stride warned of a "Burnham penalty" and said the country faced "the prospect of a new prime minister coming in with a plan to borrow even more" alongside anti-growth taxes.

It also said Chancellor Rachel Reeves defended sticking to her rules by arguing they provide stability and gave "government bondholders the confidence to carry on buying those bonds," while the BBC quoted her saying, "We are still very reliant on the goodwill of strangers in buying our government bonds."

The Guardian described Burnham’s earlier "in hock" comments and talk of a radical policy agenda as setting him at a disadvantage in the City, and it said the rules are a "straitjacket" worn by successive administrations to reassure investors in the £2.9tn market for UK government debt.

The Guardian added that the International Monetary Fund signalled on Monday that whoever holds power in Britain would need to face up to "economic realities" of debt levels close to 100% of GDP and a general rise in borrowing costs for governments worldwide.