Andy Burnham has resoundingly won the Makerfield by-election and now looks almost certain to be the next prime minister, following Keir Starmer's Monday resignation as prime minister, and the decision by Wes Streeting, Burnham's main rival, to back him.

There seems little doubt that Burnham will take the party’s policies further to the left. 

That said, Burnham has, in fact, already been reined in, following comments that he would “not be in hock” to the bond market. We’re confident he’ll understand the need to remain fiscally prudent. Especially given the fate of Liz Truss and Kwasi Kwarteng, who were ousted as premier and Chancellor of the Exchequer after the bond market lost confidence in their willingness to be so. Whoever wins will inherit a difficult situation with limited, if any, room for expansive policies.

This was reinforced by public finance data published on the day of the Makerfield result, which showed a larger-than-projected deficit for May. Reports that Burnham has added former Bank of England Chief Economist Andy Haldane to his team of advisers will also help shore up his credibility. 
 

Market reaction to Burnham win 

That said, the initial market impact of the Makerfield result, as reflected in the UK government bond (gilt) and sterling markets, was muted. Why?

First of all, it didn’t come as a great surprise. Local polls had put Burnham ahead, though they had not predicted the landslide: Burnham won 54.8% of the vote, compared with only 34.5% for the Reform candidate.

Second, investors may have been somewhat relieved by the extent of Burnham’s victory over Reform. The ‘devil you know’ might be preferable for many to the untested and sometimes controversial right-wing alternative. Reform leader Nigel Farage has actually pledged to balance the government’s budget, but economists are highly sceptical that he could achieve this. Meanwhile, the candidate for the Green Party, which is also eyed with suspicion by market participants, lost her deposit in Makerfield (as, to be fair, did the Conservative and Liberal Democrat candidates too).

Third, the Conservative victory in a by-election on the same day in Aberdeen South might also indicate some stopping of the rot for the party that, despite its past woes, remains Mr Market’s preferred option. Admittedly, this was an election fought largely on the local issue of the future of the oil and gas industry, but it was also the Tories’ first by-election win north of the border since 1973. 
 

UK markets are often resilient, during political change

But the Brexit vote and Truss premiership were notable exceptions

The picture for gilts 

Gilt yields have been rising this year, but so have yields in other countries. 10-year gilt yields have climbed from 4.47% at the beginning of the year to 4.78%. That shift largely reflects the inflationary effects of the war in Iran and a major reassessment of the outlook for the Bank of England’s monetary policy. Gilt markets had priced in expectations of two quarter-point cuts at the turn of the year. But in an about-turn, at least one increase is now priced in. In a similar fashion, 10-year US treasury bond yields rose during the week of the by-elections from 4.16% to 4.45%. Gilt yields were higher in the wake of the Makerfield result, but generally in line with yields across Europe. 

Sterling performance

The pound hasn’t been greatly affected by the results. Having fallen quite sharply against the dollar in the days before the by-election, largely because of a generally stronger dollar, it was actually up a little on results day. On a trade-weighted basis, the greenback has reached its highest level in more than a year, since the big fall it suffered after US President Donald Trump’s April 2025 announcement of the ‘liberation day’ tariffs. That renewed strength has been driven by a combination of continuing demand for US technology shares (with Elon Musk’s company, SpaceX, the latest money-magnet) and the hawkish tone adopted by the new Chair of the Federal Reserve, Kevin Warsh.  

On the day of the by-elections, the Bank of England’s Monetary Policy Committee announced it was leaving its base rate unchanged at 3.75%.

Reading between the lines, however, we can see some indications that the committee is sensitive to underlying weakness in the economy. This might give those seeking a rate cut an upper hand in future, especially if the US deal with Iran holds, making it possible for energy prices to subside.

Sterling has been more resilient against the euro, falling in the days before the by-elections, but rising slightly on results day. It remains at the upper end of its post-Brexit trade-weighted trading range and continues to show remarkably few signs of stress. 
 

Not playing FTSE

The UK’s FTSE 100 stock market index underperformed other global indices in by-elections week, but that’s largely down to its composition. We normally expect it to do better when the pound falls versus the dollar because so much of the profit of FTSE 100 companies is made in dollars. But in the week of the by-elections, it was held back by two things. One is its lack of exposure to the technology industry. The other is the downward pressure on the oil majors Shell and BP in the light of the US-Iran deal, which has lowered oil prices.

With so many other fish to fry, it may well be that global investors will only express their opinions more firmly when there's more clarity about the shape of the next government. Of great importance is the question of who might be Chancellor under Burnham. We’ve included some of musings and actions among the runners and riders in the boxes below - as well some more information about Burnham himself.
 

Potential leadership contender Streeting is centre-left 

Potential chancellors Ed Miliband, Pat McFadden, and Yvette Cooper are also centre or soft-left
 

Stick to the path

In the meantime, we advise clients to stick to existing paths, for their savings and investments. There will no doubt be more speculation ahead about a potential increase in the rate of capital gains tax, as well as the usual uncertainty about rules affecting pensions. But we would prefer to see more evidence of policy change first – clients have made costly mistakes by taking unnecessary pre-emptive action in the past. 

A new prime minister will face the same fiscal and macroeconomic challenges posed by an ageing population. For more on this, please see ‘The world is growing older’.

To see our prescription for growing the economy faster, providing a long-term boost to the Treasury’s tax revenue, please see ‘Building prosperity’.

We include possible contenders for Chancellor of the Exchequer and other senior Cabinet positions under Burnham.