A call to end the UK’s dependence on foreign lenders by Andy Burnham has been criticised by City investors who said such an approach would risk another bond market crisis.
The mayor of Greater Manchester said the UK should not be “in hock” to bond markets as he outlined measures that he believed a Labour government should pursue, including a big council housebuilding programme and the nationalisation of utilities paid for with a rise in taxes on the higher paid, a charge on expensive London homes and £40bn of extra borrowing.
Burnham made the comments amid mounting speculation that he is seeking a return to Westminster, saying that Labour MPs were privately urging him to launch a leadership challenge against Keir Starmer.
Burnham told the New Statesman magazine: “We’ve got to get beyond this thing of being in hock to the bond market,” before he suggested a pact was possible with the former Labour leader Jeremy Corbyn, who sits in parliament as an independent.
The Labour mayor’s comments came as the yield, or interest rate, on UK government bonds rose to the highest level since early September. The yield on 10-year UK bonds edged five basis points higher to 4.726%.
In a further sign of concern among international lenders about the UK’s long financial credibility, the yield on 30-year gilt yields increased by 5.5 basis points to 5.54% – a rise that pushed long-term borrowing rates towards 5.75% – a 27-year high hit a few weeks ago.
In 2021 the 10-year yield was less than 1%.
Kathleen Brooks, the head of research at the currency trader XTB, said: “Political risks in the UK are once again spooking the UK’s bond market.
“The problem with Burnham’s rhetoric is that the UK government needs to be very aware of the bond market, because we have a budget deficit, which has been exacerbated by Labour’s current spending plans. His agenda could widen the deficit and push up borrowing costs even more, which is why bond yields are rising on Thursday.”
Lloyd Harris, the head of fixed income at Premier Miton Investors, told Bloomberg rising bond yields reflected “nervousness about [Burnham’s] comments” and lacklustre demand at recent government debt auctions.
James Athey, a fund manager at Marlborough, added: “From a bond pricing perspective, the likelihood of Andy Burnham being in power is going to be a significant input into the calculus.
“[The market] would be incredibly concerned about not just what he’s suggesting and the quantum of borrowing that he’s talking about, but the cavalier attitude to bond investors.”
