Shares in Babcock, BAE Systems and QinetiQ have risen after former defence secretary John Healey was appointed chancellor. Investors expect him to support faster military investment, but funding a move towards 3% of GDP could require around £10 billion of additional annual spending.
UK government borrowing fell to £16 billion in June as tax receipts increased and inflation-linked debt-interest costs declined. However, borrowing remains above forecast for the financial year and public debt is close to 95% of GDP.
Political change, British Steel’s nationalisation, rising mortgage rates and renewed energy pressures shaped the UK business week. Sentoria reviews the main developments and considers the economic data, company results and policy decisions likely to influence the week ahead.
UK businesses face political change, rising mortgage rates and renewed market volatility as Andy Burnham prepares to become prime minister. China has condemned the nationalisation of British Steel, while Burberry reported improving sales despite disruption from the Middle East conflict.
The government has taken British Steel into public ownership as it seeks to preserve domestic steelmaking and protect thousands of jobs. Elsewhere, the incoming administration faces warnings over Britain’s £330 billion fiscal challenge, London’s listing crisis, pension investment barriers and retail employment costs, while the UK-India trade agreement creates new opportunities for exporters.
Bank of England Governor Andrew Bailey has warned that Britain’s prolonged period of low economic growth is the central structural challenge facing Andy Burnham’s incoming government. Productivity, business investment and growth in living standards have weakened substantially since the financial crisis, while renewed energy instability is adding to the pressure.
Business leaders have urged incoming prime minister Andy Burnham to make reducing UK energy costs a day-one priority. The CBI and Energy UK argue that removing policy charges from electricity bills could cut costs by as much as 20% for some companies and generate £130 billion of additional economic activity by 2050.
City traders have reportedly built short positions of about £7 billion against sterling as markets assess the prospect of an Andy Burnham premiership. The move reflects concern over Britain’s fiscal outlook, borrowing costs and uncertainty around future tax and spending plans. But the reaction is not a simple verdict on Burnham: the pound has also recovered when he has committed to existing fiscal rules, showing that markets are watching for credible detail rather than rejecting political change outright.
The next UK prime minister will inherit a difficult economic backdrop of weak growth, high borrowing costs and stretched public finances. Andy Burnham may be able to offer a political reset, but markets and businesses will judge him on fiscal credibility, Treasury appointments and whether he confronts economic reality rather than relying on optimistic forecasts.
The pound weakened and UK government bonds remained cautious after Sir Keir Starmer announced his resignation as prime minister. Markets appear to have priced in much of the political risk, but attention is now turning to Andy Burnham, the leadership timetable, the next chancellor and whether the UK’s fiscal rules will remain credible.
