Stock prices dropped as Andy Burnham launched a major Cabinet reshuffle today, in a blow to the new Prime Minister. Mr Burnham axed Rachel Reeves from her role as Chancellor shortly after entering Number 10, alongside other major Labour figures including David Lammy, Steve Reed and Lord Hermer.
He quickly appointed John Healey to replace Ms Reeves in a surprise move after speculation that Shabana Mahmood and Ed Miliband had been frontrunners for the role. But the chaos spooked the markets, with the FTSE 100 finishing 0.71% lower at 10,524.76 points.
Investors were also left uncertain about exactly what Mr Burnham’s economic policy will look like, despite his claims that any new spending plans will be fully funded and that he will “stick to the fiscal rules”.
But he added that he would use “any flexibility” he could find within the existing rules, after which the financial markets took a downturn.
The yield on 10-year Government bonds, called gilts, moved eight basis points higher to 5.049% at the end of London trading, bringing the cost of UK state borrowing to its highest level for around two months.
The value of the pound also slipped by 0.29% to 1.341 against the US dollar, having previously been positive for most of the day’s trading.
It came after Mr Burnham promised to usher in a period of “reflection and new resolution” in his first speech as Prime Minister. “Britain needs to show the world that we can regain our stability once again,” he said.
He continued: “I know people at home are fed up with politics. I hear you and I want to be honest with you – we have not been good enough, and we need to be better. We will be.
“We will make this moment a circuit breaker for Britain, bringing forward the biggest changes in the last 40 years – a new political model and a new economic model.”
Mr Burnham suggested this would involve putting “life’s essentials back under public control to make them affordable” and using public spending to back British businesses.
He said he would lay out a 10-year plan later this year, as well as providing more immediate support to households struggling with rising costs.