The British pound has experienced a notable bounce in the early stages of Andy Burnham's leadership, with the currency rising against the euro to 1.16 resistance. This positive movement can be attributed to the swift transition and the avoidance of a prolonged leadership contest, which was initially expected to create uncertainty. The pound's relief is a reaction to the 'least-bad' scenario, as a leadership battle would have potentially led to left-leaning policies that could have scared the market.
Burnham's clean slate and the absence of predetermined red lines are seen as positive factors for the pound. His commitment to respecting the UK's fiscal rules, as mentioned in the Times, is a key aspect of this stability. However, the market's reaction to Burnham's premiership will heavily depend on any potential changes to these fiscal rules and the appointment of his Chancellor.
The appointment of Ed Miliband as Chancellor is a significant moment, as it provides insight into Burnham's economic politics. Miliband's pursuit of the UK's net-zero agenda and his potential to challenge Treasury orthodoxy could be seen as a challenge to supply-side reforms in the energy market, which may worry markets. On the other hand, the appointment of Wes Streeting as Chancellor could be more market-friendly, as he is considered a centrist figure within Labour.
The pound's short-term bounce could be a result of the market's optimism about the transition, but there are risks associated with Burnham's policies and the potential changes to fiscal rules. The market's reaction to these changes will determine the pound's future trajectory, with the possibility of a contained rise or a disorderly move that could impact the cost of servicing the country's debt on global bond markets.
