Faisal Islam: Burnham seeks to calm markets by committing to fiscal rules

Greater Manchester Mayor Andy Burnham has committed to sticking to the government's existing borrowing limits, known as its fiscal rules.

And the markets appear to have reacted.

In recent weeks, Burnham had suggested the rules might be changed, for example by exempting rises in defence spending as has occurred in Germany to allow for extra spending.

Then on Friday, UK borrowing costs rose amid the possibility of a win, a quick leadership election, and Burnham's coronation as Labour leader as well as global tumult.

However, on Monday, the Burnham campaign confirmed to BBC News that was no longer an option.

That same day, UK 10-year gilt yield – a measure of the effective interest rate on a 10-year loan to government – fell back, something attributed to Burnham's attempt to calm markets.

Bond market expert Mohamed El-Erian said: "These comments from Andy Burnham contributed to this morning's outperformance of the UK bond market.

"It makes total sense to clarify his approach at this time of global bond market turbulence."

A former minister and Burnham backer told BBC News: "He has committed to the rules as they are. It is totally essential. He understands the cost of borrowing is a huge constraint on government."

On Monday, the International Monetary Fund urged the UK to stick to the fiscal rules which continue to shrink government borrowing faster than other major economies.

The main fiscal rules limit how much the government can borrow to fund day-to-day public spending and compel the government to ensure that debt as a share of national income is falling by the end of the Parliament, expected in 2029.

Over the weekend, Burnham told ITV News: "Let me say this really clearly. I support the fiscal rules.

"There needs to be a plan to get debt down, but beyond that, we need to change politics and take the turbulence out of British politics because that is a cause of uncertainty that then has that impact in the markets."

The main force behind rising government bond yields has been the war against Iran, and prospects of a prolonged blockade in the Strait of Hormuz which have driven up expectations of inflation and interest rates, sending many G7 rates to multi decade highs.

Many in markets suggested it was a very sensitive time for profound political uncertainty especially about levels of borrowing.

There have been multiple versions and refinements made to the fiscal rules by successive governments including the current one.