Transcription
Bond markets are now looking very closely at Britain. And the reason is simple. Investors are hearing more and more talk that sounds like a disregard for the bond market at the exact moment Britain needs those markets to trust its economic plan.
This may sound technical. It may sound like something that only matters to traders, bankers, and people inside the city of London. But it's much bigger than that. The bond market is where the government borrows money. If investors lose confidence, the cost of that borrowing rises. And when that happens, the consequences do not stay in the financial pages. They can show up in mortgage rates, taxes, public spending, business confidence, and the cost of living.
That is why Andy Burnham's comments from last year are now being looked at again. Last year, the Guardian reported the mayor of Greater Manchester said the UK should not be in hawk to bond markets as he outlined measures that he believed a Labor government should pursue. That phrase matters because it landed in a country that had already lived through the Liz Truss market shock. So when a major Labor figure talks about Britain being too controlled by the bond market, investors do not just hear a political slogan. They hear a possible warning about the direction of future economic policy, particularly when the future of the current prime minister is in doubt.
That is what makes this moment so sensitive. If Keir Starmer looked completely secure, Burnham's past comments might be treated as one politician's old argument about growth and investment. But when there is growing speculation about who could lead Labor next, those comments take on a different meaning. There's now a lot of talk about Andy Burnham as a possible future Labor leader. So naturally, markets and commentators are looking again at what he's previously said about borrowing, spending, fiscal rules, and bond markets. His line about Britain not being in hawk to the whims of investors is coming back into focus at the exact same time bond markets are already in the news. UK borrowing costs are under pressure and investors are questioning whether Britain has a credible long-term economic plan.
Take a look at this LBC clip where Lord Jim O'Neill, a former Goldman Sachs chief economist, former Treasury Minister, and someone who has advised Rachel Reeves, explains why any serious disregard for the bond market could trigger a major financial crisis.
"Andy has presided over a fantastic story in Manchester. And so long as he had some proper uh perhaps stronger fiscal rules, and I don't mean that by just being tighter. I mean, even more credible ones that allow for more."
"Well, he can't tell the bond market to go swing. He did in an interview a few months ago."
"He's got and he has to grow himself back a lot from that. That's for sure."
"So, so if if leftwing Labour MPs are hoping for someone to come in and just say, 'No, well, bond markets take a running jump.'"
"Guaranteed crisis virtually guaranteed."
"How did he row back on that given that he said it given that's one of the things that people like about quote unquote Burnhamism or Manchesterism?"
"I don't know. That's for Andy to figure out."
What Lord O'Neill is saying is extremely important. He's not saying Burnham has no achievements. He actually says Burnham has presided over a fantastic story in Manchester. But then he gives the warning. Burnham cannot tell the bond market to go swing. And if leftwing Labour MPs are hoping for a leader who comes in and says the bond markets can take a running jump, O'Neill says the result is almost guaranteed: crisis. And that is the point. It would cause a crisis.
And this is why the warning matters because this is not just about Andy Burnham's comments last year. The same attitude is now appearing more openly in Westminster. On Sky News, Cathy Newman asked Diane Abbott, the former Labour MP who now sits as an independent, whether a long leadership contest could send bond markets into panic. Abbott pushed back and said British politics cannot be run at the behest of the bond markets. Then when Newman warned that people could become poorer if Britain ignores the markets, Abbott said that if the government is going to be dominated by the bond market, MPs might as well go home.
Take a look at this Sky News clip where Cathy Newman challenges Diane Abbott on whether Britain can afford to ignore the bond markets, drawing political chaos.
"I want there to be a proper properly organized selection process and we'll see who emerges."
"And that will take weeks and weeks. And meanwhile the bond markets will go into a you know pity. British British politics and British parliament can't be run, you know, at the behest of the bond markets. We have to we have to do what's right. We have to do what's right and we have to choose the right person to be leader of the Labour party and prime minister. And we have to do it as quickly as possible. But we have to do it properly."
"We're all going to be pretty poor if we don't pay heed to the markets, though, aren't we?"
"No. Come on. I mean, if if if the if the British government is going to be completely dominated by the bond market, MPs might as well go home."
"Borrow money."
"Well, there's that. Sorry, there's that."
"Or cut the welfare bill."
"There's that."
Veteran journalist Andrew Neil responded to the clip on X, stating, "This is economic ignorance of a high degree, even for my old mate Diane. If you don't want to be dominated by the bond markets, then don't borrow £3 trillion from them. Be honest with the people and explain how your idea of socialism will entail everybody paying a shedload more in tax. If you can't do that, then you will be in hawk to the bond markets. It's as simple as that."
And this is where the concern becomes even sharper because the language is not stopping with Diane Abbott. It's now appearing in conversations about who could lead Labour next, what economic direction the party might take, and whether Britain's next political chapter could involve a more confrontational attitude towards investors at the very moment borrowing costs are already under pressure.
Recently, City AM reported Paula Barker, the Labour member for Liverpool Wavertree, hailed Burnham as a fantastic politician, who is the only person likely to beat Starmer in a leadership election during an interview with Times Radio. But asked where the markets might give short shrift to a more fiscally loose economic agenda, Barker said, "The markets will have to fall into line," adding that investors would view the UK as the best place to be if governments unveiled progressive policies that do speak to our communities.
Bond markets do not care about Labour's internal politics, campaign promises, or speeches about fairness. They're ruthless. They have no patriotic loyalty to Britain. No emotional attachment to Westminster and no duty to fund a government's agenda. All they care about is whether they will be paid back, whether inflation will destroy the value of their returns, and whether the risk is worth the reward. If investors think Britain is becoming reckless with borrowing, they will punish it. They will sell gilts. They will demand higher yields. They will mark down the pound and they will move their money somewhere else. That is the brutal reality. Politicians often forget.
Governments can say the markets must fall into line, but bond markets do not take orders from MPs. The reason this matters is because some politicians speak as if the bond market is something Britain can simply negotiate with, pressure, or work around. But that is not how debt markets operate. If Britain borrows more, investors will judge that borrowing like any other risk. They will not give the UK a discount because the spending is politically popular, morally important, or described as an emergency. Debt is still debt, and if that debt rises without a credible plan to pay for it, investors will respond.
This point was made clearly by Robert Peston on the "Rest is Money" podcast. He explained that if a future prime minister tried to take major spending, such as defense, out of the fiscal rules to make the numbers look better, investors would not simply accept that. They would still see it as borrowing and they would still price it as risk.
Take a look at this clip from "Rest is Money" where Robert Peston explains why foreign investors are not going to take a patriotic view of lending to Britain.
"It's quite striking that those on the left and you know the the the you know mayor of Greater Manchester who I think you know if he can if he can get a seat and there it looks to me as though there are moves um afoot to get him a seat in parliament Andy Burnham um I think he's the most if he gets a seat in parliament he's definitely the most likely to succeed Starmer as leader and prime minister and I think you know that's not an unlikely prospect at the moment um but we'll see but he has been flirting with the idea given that we have to increase defense spending to you know first 3% of GDP then 3 and a half% of GDP and we're looking at tens of billions of pounds of more spending if you're on the left of the party you don't want that additional spending to come um from you know at the cost of less spending for schools hospitals and public services so on the left people like Andy Burnham are looking for ways to pay for defense that doesn't lead to cuts elsewhere. And so, you know, he's mooting, well, maybe you could take that defense spending out of the fiscal targets, out of the fiscal rules. Um, you know, have the defense spending not add to the official, you know, targeted national debt. I have to say that I think if if any prime minister of the UK does do that, they will be hammered by investors because debt is debt. The idea that somehow a hedge fund based based in America or you know some kind of money manager in Singapore are going to essentially take a patriotic view that it is their duty to lend to the UK at lower interest rates to fund defense spending in the UK is pretty absurd. Um, anything that adds to the national debt will be seen by investors as bad for the creditworthiness of the British government and the British government will be penalized for that."
That is the brutal reality. A money manager in Singapore, a hedge fund in America, or an investment fund in the Middle East is not sitting there thinking it has the duty to help Britain fund its promises. They are looking at the numbers. They're asking whether the debt is sustainable. They're asking whether the government has a serious growth plan. They're asking whether inflation, borrowing, and political instability make Britain a bigger risk.
And this is why the phrase "the markets will have to fall into line" is so dangerous. Because markets do not fall into line. They reprice risk. They sell debt. They push yields higher. And when that happens, the cost is passed through the whole economy. Government borrowing becomes more expensive. Mortgage rates can rise. Businesses face higher finance costs, and the government suddenly has even less room to spend.
So the issue is not whether Britain should spend more on defense, welfare, public services, or investment. Those are political choices. The issue is whether politicians are being honest about how those choices are funded. Because if they pretend borrowing can be moved around, renamed, or hidden from the markets, investors will see straight through it. And once they do, Britain pays more.
The Guardian reported as Keir Starmer's grip on power appeared to be slipping away, the yield, in effect the interest rate on 30-year government bonds or gilts, briefly reached 5.8% on Tuesday, the highest level since 1998, before slipping back after a challenge failed to immediately materialize. However, selling pressure has been maintained on the UK's government's bonds relative to its G7 peers, with investors fearing a return to political instability in Britain and a left-wing shift by Labour involving higher levels of borrowing.
And that is the key point. This is no longer theoretical. This is not just people warning that markets might react badly one day in the future. The reaction is already beginning to show. When the yield on 30-year gilts moves towards levels not seen since 1998, that is not a small signal. That is the bond market saying Britain looks riskier than it did before. And the reason matters. Investors are not only worried about global shocks, higher oil prices, or the wider cost of borrowing across the world. They're also looking specifically at British politics and asking whether the country is about to enter another period of instability.
That is why the comparison with Liz Truss keeps coming back. It's not because the situation is exactly the same. It's not because every Labour politician is proposing the same thing as the mini-budget. The point is about credibility. During the Truss moment, markets looked at the government's plans and decided the numbers did not add up. They reacted brutally. Borrowing costs surged, the pound came under pressure, mortgage markets were shaken, and the political consequences were immediate.
So when investors hear talk about markets having to fall into line or politicians saying Britain cannot be run at the behest of bond markets, they're not hearing a normal political debate. They're hearing a possible warning that the next phase of British politics could involve more borrowing, looser fiscal rules, and less respect for market discipline. And once again, ordinary people could end up paying the price. Because if gilt yields rise, it becomes more expensive for the government to borrow. If government borrowing becomes more expensive, debt interest eats up more of the public finances. That leaves less money for public services, less room for tax cuts, and more pressure on future budgets. It also affects mortgage rates, business loans, and investor confidence.
This is why the bond market cannot simply be dismissed as a rich person's concern. It's one of the places where Britain's credibility is judged in real time. And right now, the warning is that political instability, higher borrowing, and loose promises could become a dangerous combination.
So the message from the bond market is simple. Britain cannot afford another period where politicians act as if borrowing has no limits and markets have no power. Whether the leader is Keir Starmer, Andy Burnham, or someone else, the same reality remains. Debt has to be funded. Investors have to be convinced. And if they're not convinced, they will not wait for permission to react. They will sell. They will demand higher yields, and the cost will come back to households, businesses, and the government itself. That is why dismissing the bond market is not brave, it's dangerous.