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Andy Burnham announced his cabinet and first policy moves on Monday. (chrisdorney / Shutterstock.com)
A risk-off mood slightly soured Andy Burnham’s triumphant arrival in Downing Street yesterday, as tensions in the Middle East continued to drag the price of oil higher and support safe-haven currencies.
Sterling fell sharply against the euro and US dollar after the first ministerial reshuffles broke on Monday afternoon. Chancellor Rachel Reeves resigned, clearing the way for former defence secretary John Healey to take over control of the UK’s purse strings.
The race to be the next chancellor had been framed as a direct showdown between Ed Miliband and Shabana Mahmood, the home secretary. Instead, Burnham’s first big call raised a few eyebrows in the Labour ranks. He opted to keep Mahmood in her position, move Miliband to the Foreign Office and ask Healey, regarded as one of the most market-friendly options, to find the money allocated to his old department in the recent defence review, which had initially drawn his resignation.
Without the benefit of a long election campaign, we don’t know have the full details about Burnham’s priorities in government. Yesterday offered the first insight with a swift allocation of over £300mn to tackle rough sleeping. He has also hinted at asking higher earners to pay more tax in the past, setting the scene for a massive autumn Budget once parliament returns from its summer break.
We just heard that UK unemployment held steady at 4.9% in May. Average earnings including bonuses meanwhile increased by 4.3% in the same timeframe, slightly below what economists had forecast.
Overnight, Iran continued to strike vessels in the Strait of Hormuz as tensions remained high. The price of oil was stable at close to $90 per barrel this morning, helped somewhat by the prospect of fresh diplomatic efforts. However, the Houthis announced they were blockading Saudi Arabian ports in the Red Sea, adding another point of complexity to an already unstable situation.
GBP: How flexible can Burnham be?
Government borrowing costs spiked yesterday as the incoming prime minister hinted that he was looking to find a little flexibility in the self-imposed fiscal rules. The question was whether the bond market would accept this over the medium term. Rachel Reeves spent much of her time in Number 11 preaching discipline and the initial reaction suggests Burnham will have to tread carefully to avoid yet another spending crisis.GBP/USD: the past year
EUR: Sticking to the data
The European Central Bank’s (ECB) data-dependent stance limited the euro's losses to start the week. Inflation is rising, but more slowly than expected, giving the ECB scope to stick to its wait-and-see framework. Currency markets still assume the ECB will raise rates this year, even if it does decide to hold on Thursday.GBP/EUR: the past year
USD: Risk features heavily
A quiet week for American data might normally put a bit of a dampener on the US dollar’s upward momentum. Not this time, though, as Iran’s threat to halt the flow of oil through the Strait of Hormuz entirely pulled investors towards the dollar and away from currencies more exposed to energy prices.USD/GBP: the past year
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