Key Takeaways
- Labour’s Andy Burnham has won the Makerfield by-election with 55% of the vote.
- The result is likely to trigger a leadership contest as Burnham seeks to challenge Keir Starmer.
- The pound and FTSE 100 initially fell sharply but then recovered as investors await clarity on Burnham’s economic plans and the timetable for any leadership contest.
UK stock indexes opened lower and the pound fell after Manchester mayor Andy Burnham confirmed his return to Westminster with a comfortable win in the Makerfield by-election, triggering speculation about the future of UK government and economic policy.
The FTSE 100 opened lower, before rebounding to just below 10,400 points, 0.22% lower than the last close. Over the week the UK index is around 1% lower. The more domestically-exposed FTSE 250 fell 0.5% to 23,212 points.
By midday, the Morningstar UK Index had recovered from losses in early trading.
Sterling weakened against the dollar, briefly dipping below USD 1.32, from USD 1.34 on Thursday, while the yield on 10-year gilts ticked up 0.06 percentage points to 4.83%.
While the by-election was expected to be a closely-run contest between Labour’s Burnham and Reform UK candidate Robert Kenyon, Burnham won 55% of the vote.
The result means Burnham is now eligible to challenge Keir Starmer as Labour leader and prime minister, which he is expected to do.
“Burnham’s win means a changeover is now all but certain, but questions of policy and the chancellor appointment will be the bigger driver,” says Chris Beauchamp, chief market analyst at IG.
“Easing UK borrowing costs provide some relief, but this might be short-lived if the Northern Pretender seems likely to open the spending taps,” he adds.
Beauchamp noted the pound’s fall may be partly due to USD strength after this week’s hawkish Fed meeting, rather than fresh leadership uncertainty in the UK.
Stephen Jones, global CIO at Aegon Asset Management, says the dip in currency markets is a “notable” move, marking the first signs of scrutiny of the next stage of Burnham’s quest to Downing Street.
“Markets are looking for policy, and evidence that it will be adhered to through what will be a series of tough decisions and actions rather than the limited test of constituency or even regional level hustings,” he says.
“Burnham’s march to Westminster and perhaps Downing Street is still on flat ground and is easy walking. There are hills aplenty to walk up on the horizon. In the FX market this morning we are seeing the first signs of scrutiny of that next stage of the journey,” he adds.
Public Sector Finances Leave Little Room for Maneuver
Public sector borrowing figures for May provide Burnham with a clear reminder of the challenges he faces should he take over as prime minister, according to Richard Carter, head of fixed interest research at Quilter Cheviot.
The release this morning by the Office for National Statistics shows public sector borrowing rose to £23.3 billion in May 2026, a 30.4% increase on May 2025. Some £11.7bn was spent on debt interest repayment in May, more than 50% higher than the same time last year.
“Markets await to see just how quickly he looks to strike and ultimately seize the premiership from Keir Starmer, and what his economic plan looks like exactly,” says Carter.
“While yields have come down in recent weeks as the US and Iran resolve their conflict, borrowing is higher than it was last year and bond markets are still uncomfortable with the level of borrowing and lack of spending cuts being proposed by this government,” he adds.
“Ultimately none of that is going to change with a Burnham government, and in fact could easily see further entrenchment. Burnham will likely be elected by the Labour Party to bring the government more to the left, increasing taxes, spending and ultimately borrowing—indeed the concept of additional borrowing specifically to fund much needed defense spending has been mooted of late.”
The yield on UK bonds is likely to remain at a premium to other developed market peers, resulting in increasing costs for debt interest, adds Carter. Burnham previously spooked investors by saying the UK should not be beholden to the bond markets. However, he has since said he would stick to the current government’s fiscal rules.
“The political picture is likely to get messy in the short-term, but concerns around the public finances will endure long after it is resolved,” adds Quilter’s Carter.
