Bond markets did not take long in the afternoon to deliver their first verdict on Andy Burnham’s Prime Minister: borrowing for Britain has just become more expensive, and the cost of debt for its businesses may not be too far off.
The 10-year yield rose 0.05 basis points to 4.97 per cent after the new prime minister used his first speech outside 10 Downing Street to promise a “new economic model”, a move equivalent to a 1 per cent rise in UK borrowing costs. The pound was firmer, up 0.1 percent against the dollar at $1.35 in afternoon trade.
For small business owners, numbers are more important than theater. Gilt’s products range from variable rates to corporate loans, commercial loans and mortgages. A government that pays more to borrow tends, in the long run, to mean firms that pay more.
Burnham was unapologetic about the scale of his ambition. “We will make this period a circuit breaker in Britain, bringing about the biggest changes in the last 40 years, a new political model and a new economic model,” he said.
“In the 1980s Britain changed the wrong things.
The prime minister said he would “build a new economy where we bring the essentials of life back under strict control so they can be afforded to you and, renew Britain using public procurement to support British industry”.
That last sentence needs attention from owner-managers. Whitehall already has intentions to send more than £7.4 billion a year in public contracts to small companies by 2028, and a prime minister who has decided to use the government’s purchasing power to support British industry, if he follows through, could push more of that work to domestic suppliers.
There are near-term issues for hard-pressed firms and their clients as well. Burnham said he would set out plans this week to give people “breathing space” on the cost of living, with a 10-year vision for the country to follow later this year.
“I can do something to give people some breathing space now, some help with the cost of living, and I will put some of those measures in place starting tomorrow, including how we pay them,” he said.
He also promised to “help more young people to work by changing the education system and giving them more support, more mental health support”, as well as a promise to build more council houses.
“That is a fair and sustainable way to reduce the welfare bill to meet our financial obligations and to respect our obligations to protect our international partners,” he said.
The audience he needs most to win them over, however, is nervous. Eight in 10 SME owners told researchers they feared what Prime Minister Burnham would mean for their business even before he arrived in Downing Street, and he inherits an economy that grew by 0.1 per cent in May and is described as stagflation.
Gilt investors, on the other hand, have linked five short words: how we pay them. Until that question is answered, every security in the conversation carries a price tag that the markets will set, and corporate borrowers will feel. For SMEs with a weighted loan, repayment or fixed rate, the early days of the Burnham period are an argument to keep a close eye on the bond market and articles.
