File image of Andy Burnham. Copyright by World Economic Forum / Faruk Pinjo.
Andy Burnham won't test the bond markets.
The British pound rose after the UK's (likely) next Prime Minister confirmed he won't toy with the country's fiscal rules.
Andy Burnham has confirmed on Monday that if he becomes PM he will not amend the existing fiscal rules that are designed to ensure the country's debt liabilities remain sustainable.
According to Bloomberg, Burnham is today "explicitly ruling out any changes to the existing fiscal rules."
The pound rallied as markets reduced some of the political risk premium associated with a future Burnham government: the pound to euro rate is half a per cent higher on the day at 1.1523, the pound to dollar is 0.80% higher at 1.3432.
The pound is up against all G10 peers, confirming a sterling-centric driver is at play.
Burnham had previously said the UK government shouldn't be "in hoc" to the bond markets, that the UK should borrow to fund public housing and more should be borrowed to fund defence.
The prospect of a Burnham government borrowing more to fund spending was a concern for markets as it risked raising inflation and making the country's debt burden increasingly unsustainable.
The pound fell sharply last Thursday and Friday after Burnham announced he would run for parliament in an upcoming by-election, which would effectively give him the keys to 10 Downing Street.
However, Monday's update from Burnham's spokesperson confirms Burnham is now also ruling out exempting defence spending from the fiscal rules to spend more on the military. He had floated that idea in an interview a few weeks ago, but his spokesperson says he won’t pursue it.
The developments mean that the potential next Prime Minister will have little option but to pursue his policy agenda via a series of additional tax hikes.
However, the IMF on Monday said Britain is close to the limit of higher taxes, saying the UK faced "a set of economic realities" that would limit the scope for further tax rises or borrowing to fund public spending.