British government borrowing costs rose and sterling briefly fell on Thursday following news about a possible route back to parliament for Greater Manchester Mayor Andy Burnham, a left-leaning potential challenger to Prime Minister Keir Starmer.
Andrew Gwynne, who represents a parliamentary seat in the Manchester area, said on Thursday that he was stepping down due to ill health, creating a vacancy in parliament that Burnham could contest.
Burnham told Reuters in an interview this week that his vision for Britain’s economy should reassure bond investors. But last year, he unsettled some investors when he said the government should not be “in hock” to the bond market.
After Gwynne’s departure was first reported by The Times newspaper on Thursday, the 10-year British government bond yield rose to its highest since January 6 at 4.512%, up 5 basis points on the day, while yields on other countries’ government bonds remained flat.
Sterling fell by almost half a cent against the U.S. dollar on the news but rallied later.
At 1605 GMT, shortly after Gwynne himself confirmed the news in a social media post, 10-year gilt yields remained 3 basis points higher. Soon after, gilt futures closed 37 ticks lower on the day, while their German equivalent were little changed.
STARMER’S LABOUR PARTY FACES LOCAL ELECTIONS IN MAY
Jordan Rochester, head of EMEA fixed income and currency strategy for Japan’s Mizuho Bank, said in a note titled “The beginning of Starmer’s downfall?” that the prospect of a Burnham challenge was to blame for the gilt market fall, even if he thought the worries were premature and probably misplaced.
“It’ll take time to play out and is more a story for May or June – this will probably not be a narrative to chase just yet. But … naturally gilts will probably trade on the soft side,” he wrote.
Starmer’s Labour Party is faring badly in opinion polls and faces a test in local elections in May, leading to speculation about a leadership challenge in the coming months.
Burnham – who was briefly Britain’s deputy finance minister under Gordon Brown’s Labour government in the 2000s – would not automatically be selected as the candidate for any Labour vacancy in parliament.
If he put his name forward, he would need approval from the party’s governing body, which includes elected lawmakers, trade union representatives and local-level Labour officials.
Asked if he would support Burnham returning to parliament, Starmer said Burnham was “doing an excellent job as mayor of Manchester”.
Any Labour candidate may well lose the by-election. A More in Common survey published this month, which included constituency-level projections based on polling of more than 16,000 Britons, estimated that Nigel Farage’s Reform UK was on 30% in Gordon and Denton, ahead of Labour on 28%.
CONTROLLING PUBLIC FINANCES
Gwynne was sacked as a minister and suspended from Labour by Starmer in February 2025 over WhatsApp messages insulting constituents and other members of parliament. Gwynne has sat as an independent lawmaker since then.
Burnham – the mayor of Manchester in northern England since 2017 – told Reuters on Tuesday that restoring public control over key services would lower long-term costs for the state while past deregulation, privatisation, austerity and Brexit had weakened control over public finances.
Finance minister Rachel Reeves said earlier this week that investors did not need to worry about the prospect of Starmer being replaced in Downing Street.
“Even if someone did have the stupid idea of challenging the prime minister, it is incredibly difficult to do so, and I have every confidence that Keir will continue to be Prime Minister all through this term,” she said at an event hosted by Bloomberg in Davos on Tuesday.
(Additional reporting by David Milliken and Sam Tabahriti）
