Burnham Must Beware: Bond Markets Will Demand Real Answers in the Budget

It would be premature to say bond markets have turned against Andy Burnham. Tuesday’s jump in gilt yields, which pushed the UK’s 30-year borrowing costs to their highest level since 1998, formed part of an international sell-off in government debt.

Several pressures are driving that move. The war in Iran has raised energy costs and disrupted expectations of falling global inflation and interest rates. A sharply weaker Japanese yen has removed another assumed source of financial stability. U.S. Treasury Secretary Scott Bessent has not calmed markets with his unsuccessful effort to push down U.S. yields. At the same time, the early AI boom is generating vast amounts of debt before investors can properly judge its long-term returns.

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Markets are sceptical that ‘devolution’ and ‘control’ are levers for lower government-led inflation.

For bond investors, demanding a higher return from heavily indebted governments is therefore logical. Britain’s problem is that it was already sitting at the uncomfortable end of the group. It has the highest borrowing rates in the G7, a position linked largely to a poor two-decade record on controlling inflation and, increasingly, its dependence on imported energy, which stood at 43% in 2025.

Six weeks into office, Burnham and Healey have said little to change that assessment. Investors have heard the formal commitment to Rachel Reeves’s fiscal rules, but Burnham’s speech in the House of Commons on Tuesday showed little urgency about the country’s financial position. It also offered little appreciation of the damage that could follow if 10-year gilt yields remain at 5.2% for an extended period.

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Burnham/Healey’s unenviable task is to prove they are the right levers. If they fail then a very painful period of financial repression/demand side-led disinflation will be necessary.

Burnham’s repeated call for greater “public control” of utilities may appeal to Labour backbenchers, but markets want to know how it would deliver substantially lower infrastructure costs. Simon French of Panmure Liberum said investors doubt whether “devolution” and “control” can reduce government-led inflation. Burnham and Healey must prove that these are the right tools, he said, or Britain will face a painful period of financial repression and demand-led disinflation.

The uncomfortable possibility is that the bond market expects next month’s budget to be more consequential than the government intends. Former Goldman Sachs economist Jim O’Neill called Burnham’s tone “the last thing investors wanted to hear.” His warning was particularly pointed because he had recently been considered for a government role. High borrowing costs, he told the BBC, would leave Labour under pressure to respond.

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The last thing investors wanted to hear.