How bond markets reacted to new Prime Minister Andy Burnham, and what it might mean for you

With former Manchester Mayor, Andy Burnham, becoming Prime Minister, you might’ve heard about how the bond markets have reacted.

The government relies on borrowing through bonds. So, when those markets move, it can have implications for the wider economy, your money, and even your pension.

Find out what we know about the new Prime Minister so far, who’s in his cabinet, and why the bond markets could be important to both Burnham’s premiership and your finances.

Some small, early policy changes, but nothing too concrete - yet

So far, Burnham’s given little away in terms of policy. But we’ve seen a few early changes that suggest what sort of leader he intends to be. That includes:

• a cut in VAT on electricity bills from October, saving the average household around £45 a year; 
• reverting the cap on bus fares outside London to £2 from January, which Keir Starmer had increased to £3 at the start of last year; and
• a 20% cut in business rates for English pubs, clubs, and live music venues from April.

The Prime Minister did also mention the frozen Personal Allowance for Income Tax, too. The threshold has been frozen at £12,570 since 2021, dragging more people into paying tax over time.

Burnham said he heard much frustration around the allowance during the Makerfield by-election. 

He’s since said that he’s not making any “immediate commitment” to changing the threshold. However, he did add that it could be considered at the next Budget this Autumn.

Beyond that, Burnham’s priorities are a little less defined and it’s yet to be seen where he’ll focus his attention. 

As Manchester Mayor, his ideology focused around a belief in business friendly socialism. In essence, he looked to support the UK’s free market while prioritising social programmes that improve peoples’ lives.

Meanwhile, it rejects the beliefs of neoliberalism, which focuses on free markets and reduced government spending. 

Burnham's been highly critical of this form of governance and its policies, such as trickle-down economics.

With those principles that he followed as Mayor of Manchester in mind, the Prime Minister looks set to explore these on a national level. To now, his priorities include:

• helping with the cost of living; 
• higher infrastructure investment; and 
• increased defence spending.

However, the issue he faces is that Britain’s become increasingly reliant on borrowing via the bond markets to fund day-to-day spending and long-term investment. 

Debt levels are elevated and demands on the public finances continue to grow, from healthcare and pensions to defence and infrastructure.

That means he’ll need to raise the money somehow, and borrowing more in bonds might be the lever he chooses to pull - more on this in a moment.

Burnham’s cabinet includes a few familiar faces

While Burnham’s the man in the top job, it’s also important to consider his cabinet. The Prime Minister’s responsible for the government’s decisions at large. But it’s the Members of Parliament in his cabinet who’ll have to deliver the policy work.

That makes this group of high-ranking politicians just as important for you and for markets.

Burnham’s cabinet includes a number of people who played a key part in Keir Starmer’s government. That includes former Deputy Prime Minister and Housing Secretary, Angela Rayner. She returns to her role at the Ministry of Housing, Communities and Local Government, although not as Deputy leader.

Meanwhile, former Defence Secretary John Healey’s now Chancellor. Former Health Secretary Wes Streeting's stepping in at the Ministry of Defence. 

Others have also kept their previous roles. That includes:

• Pat McFadden as Work and Pensions Secretary, with Torsten Bell as Pensions Minister;
• Shabana Mahmood as Home Secretary; and
• Sir Alan Campbell as Leader of the Commons.

Eyes will certainly be on Chancellor John Healey as he tries to balance the books while managing the government’s spending.

Similarly, Torsten Bell will be able to continue work on his plans of streamlining the pensions system and boosting UK investment.

View the whole of Burnham’s cabinet.

Bond markets have reacted negatively

This brings us to the bond markets.

Bonds are loans investors make to companies or governments. In the case of UK government bonds, they’re also known as ‘gilts’.

When bond interest rates rise, it means the cost of borrowing the money’s increased, making it more expensive. Think of it like a personal loan or mortgage - if the interest rate rises, so do your repayments.

Over time, that can make it even more difficult for the government to borrow money. As the government’s overall debt increases, lenders might view it as riskier to lend to. In turn, that can fuel higher interest rates and more expensive borrowing, and so on.

This can also happen in response to uncertainty in government, or changes that lenders perceive to be financially bad.

These changes may sound intangible, but they’re hugely important to the Prime Minister. In fact, it was a sudden rise in bond yields that forced the Bank of England to intervene after Liz Truss and Kwasi Kwarteng’s disastrous Mini-Budget in September 2022.

Before he became Prime Minister, Burnham and the bond markets already had somewhat of an adversarial relationship. 

Back in 2025 when he was Manchester Mayor, Burnham said that he thought the UK government shouldn’t be at the mercy of the bond markets.

At that time, the 10-year gilt yield - that’s the bond’s interest rate divided by the price - hovered around 4.73%.

Markets were relatively calm after Burnham initially announced he was throwing his hat in the ring for Prime Minister. But after taking office and naming his cabinet, they were less buoyant. 

Gilt yields rose above 5% on Monday 20 July, and stayed there overnight. That was largely in response to his statements that he’d look for “flexibility” within the government’s spending rules.

If the new Prime Minister and Chancellor intend to spend freely to achieve his goals, we could see yields stay higher for longer.

What higher gilt yields could mean for your money

A change in Prime Minister could be consequential for all of us. Policy changes could affect you directly, positively and negatively. Or it could be indirectly if they influence things like economic growth or inflation.

Likewise, bond yields don’t just matter to the government - they could also affect you and your individual finances. 

When gilt yields rise, it can filter through into other forms of borrowing, including mortgage rates.

Not only might that put a squeeze on your money as a whole, but it can also influence everything from housing market activity to consumer spending.

It could also affect your pension, depending on what type of scheme you have. 

• Defined contribution - with these schemes, your savings are usually held in a range of different investments. So, it depends on the plan you have and how much of it is held in bonds, rather than stocks and shares. If your plan does include gilts, you could see shifts in the value of your savings.
• Defined benefit - also known as ‘final salary’ pensions, this type pays a fixed income, usually for life. To do so, schemes often invest heavily in gilts, giving them certainty over the incomes so they’re able to pay out to their members. A rise in yields can reduce costs for schemes. However, it can also lower the value of your pot if you wanted to transfer it to a defined contribution scheme.

As we wait to see what’ll happen next with Burnham’s government, there might not be an immediate need to make changes to your money or pensions. 

It’s still very early days, and we don’t know exactly what the priorities will be. We’ll likely learn a lot more at the Autumn Budget later in the year.

In the meantime, it can be sensible to stick to your plan and keep following the fundamentals of saving for the future. That means:

• making the most of pension tax rules and allowances while they’re favourable;
• taking advantage of tax relief to boost your contributions; and
• contributing what you can afford to build long-term security.

Whatever direction Burnham’s government takes, it’ll be well worth staying across his premiership. Being informed can help you adapt as and where you need to.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.