Source: Fortune
Summary
Andy Burnham will become the UK’s seventh prime minister in a decade, facing the aftermath of a 2022 bond market crisis triggered by Liz Truss’s unfunded spending hikes and tax cuts. The IMF warns that foreign investors’ influence on the UK bond market, accounting for 60%-90% of yield variation, makes the economy vulnerable to volatile capital flows. Burnham will likely struggle to balance reviving growth with satisfying the bond market, which may force him to make unpopular choices.
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The strategy enters a familiar phase.
Burnham’s pro-business stance may be tested by the bond market’s demands. Ed Yardeni, who coined the term “bond vigilantes,” notes that the market will call the shots in the $4.2 trillion economy, regardless of who is prime minister. The IMF’s warning on the influence of foreign investors adds to the pressure. Burnham’s choices may be limited by the need to appease the bond market. The numbers tell one story: 30% of UK government debt is held by foreigners, leaving little room for error.
One thing is clear: the bond market is the real boss.
Author: Evan Null
