Burnham to face bond market pressure as he takes UK premiership
The incoming UK prime minister inherits a gilt market still shaped by the 2022 turmoil that helped end Liz Truss’s brief tenure.
By Hana Yoshida · Markets Reporter
3 min read
Andy Burnham is set to become the United Kingdom’s seventh prime minister in 10 years on Monday, according to Fortune, and his first economic test will come from the government bond market. The International Monetary Fund warned this week that investors remain sensitive to the credibility of UK fiscal policy after the 2022 gilt market crisis.
The IMF said the turmoil that followed Liz Truss’s 2022 budget left a lasting mark on the market for UK government bonds. That budget combined tax cuts and spending increases without funding them, triggering a sharp investor backlash and helping force Truss from office after 44 days, Fortune reported.
“Market feedback suggests that the September 2022 gilt market turmoil marked a structural shift in the fragility of the gilt market,” the IMF said. The fund added that “policy credibility and predictability” are central to rebuilding confidence after that episode.
The IMF also said foreign investors have become more important buyers and sellers in the UK bond market. It estimated that global factors explained 60% to 90% of the movement in gilt yields from 2020 to 2026.
That shift could expose the UK to more unstable capital flows, the IMF warned. The fund said a larger role for foreign investors may bring in more “fast money,” meaning capital that moves quickly in response to price changes.
Burnham has previously criticized the power of bond investors over government policy. In September 2025, he said Britain had to move beyond being “in hock to the bond market,” according to Fortune.
Ed Yardeni, the Wall Street economist who popularized the term “bond vigilantes” in the 1980s, said Burnham will still have to answer to investors. Yardeni used the phrase to describe traders who sell bonds in protest at large deficits, pushing yields higher.
“Britain soon will have a new leader,” Yardeni wrote in a note this month, according to Fortune. “But investors know it’s the bond market that will call the shots in the $4.2 trillion economy no matter who sits in the prime minister’s office.”
Yardeni said Burnham will inherit the same “hyper-reactive bond market” that hurt Truss. He also said investors kept former Prime Minister Keir Starmer and Chancellor Rachel Reeves under pressure by pushing yields higher in response to borrowing plans.
For now, Yardeni said, investors appear ready to give Burnham some room, though not much. He noted that foreign investors hold as much as 30% of UK government debt.
Markets have responded positively to reports that Shabana Mahmood is the leading candidate to become Chancellor of the Exchequer, Yardeni said. He cautioned, however, that bond investors remain uneasy.
Burnham has presented himself as pro-business while stressing support for smaller local companies over larger firms, Fortune reported. His challenge will be to lift weak growth while keeping fiscal plans acceptable to bond investors.
The IMF said some tax choices could make that task harder. It warned that raising taxes on top earners would damage the economy, while saying targeted increases in marginal tax rates near the bottom of the earnings scale, paired with more generous in-work transfers, would be more efficient.
This story draws on original reporting from Fortune.