It may be premature to conclude that the bond markets have shifted their stance on Andy Burnham. The recent increase in gilt yields, which has pushed the UK’s 30-year borrowing costs to their highest level since 1998, is part of a broader global trend involving the sell-off of government bonds.
The underlying factors driving this situation are well-documented. The ongoing conflict in Iran has raised energy prices, disrupting earlier predictions of declining global inflation and interest rates. Additionally, the sharp decline of the Japanese yen has eliminated another presumed pillar of financial stability. Efforts by US Treasury Secretary Scott Bessent to lower US yields have not alleviated concerns, while the early phases of the AI revolution are leading to massive debt issuance before any meaningful assessment of long-term capital returns can be made.
From the perspective of the so-called bond vigilantes, it is rational to demand higher returns when lending to governments with significant debt levels, which applies to most nations at this time.
In this narrow context, UK gilts are simply responding to market conditions amid rising financial uncertainties. However, the UK is already in a precarious position, holding the highest borrowing rates in the G7. This situation is primarily due to a poor record over the last two decades in controlling inflation and, more recently, a heavy reliance on energy imports, which accounted for 43% of total consumption in 2025.
Unfortunately, in the six weeks since Burnham and Chancellor John Healey assumed their roles, neither has offered insights that would lead bond investors to reassess the UK’s financial standing. While their adherence to Rachel Reeves’s fiscal guidelines is noted, Burnham’s speech in Parliament lacked urgency regarding the nation’s fiscal challenges. The current 10-year gilt yield of 5.2% poses risks if it remains at these levels for an extended period.
The concept of increased “public control” over utilities, a recurring theme in Burnham’s discourse, may resonate well within party ranks. However, even if clarified, it raises questions about its potential to significantly lower infrastructure development costs. Is this really the most pressing economic priority?
Simon French, an economist at Panmure Liberum, expressed skepticism about whether “devolution” and “control” can effectively reduce government-induced inflation. Burnham and Healey face the daunting challenge of demonstrating that these strategies are viable. Failure to do so could result in a harsh period of financial restrictions and demand-driven disinflation.
There is a growing sense that the upcoming budget may need to deliver more than what Burnham and Healey are prepared to offer. Jim O’Neill, a former Goldman Sachs economist, remarked that the tone of Burnham’s speech was not what investors were hoping to hear—a critical assessment from someone who had been considered for a government role.
O’Neill pointed out that high government borrowing costs could compel Labour to confront issues such as the state pension triple lock and what he termed “excessive” welfare spending. Thus far, there has been little indication of progress in addressing either concern.
It is possible that perceptions may be misguided, and that the forthcoming 10-year economic plan could comprehensively address pressing issues like energy costs, defense expenditure, social care, and housing shortages. However, one could also envision a scenario where tough decisions are postponed, leading to even more severe repercussions in the bond market—particularly if disruptions in global energy markets are anticipated to persist throughout the winter.
Labour has spent the past year navigating leadership changes and now needs tangible outcomes. Burnham has mentioned the importance of providing businesses and consumers relief from rising living costs. Achieving this goal becomes much more manageable when the government can secure favorable conditions in the bond markets. Regardless of whether the approach involves spending cuts or tax increases, the upcoming budget must provide clear and detailed proposals.
