Five Questions Facing Andy Burnham on the UK Economy

The ascension of Andy Burnham to the UK’s premiership marks a critical juncture for the nation’s economy. The latest GDP figures show 0.1% growth in May, but this is hardly a sign of a country surging ahead. The latest contraction may be marginally better than April’s, but it paints a disheartening picture.

Economists warn that Burnham walks into a situation where mistakes can quickly prove costly. With precious little fiscal headroom and the specter of renewed geopolitical tensions looming large, the UK is vulnerable to higher oil prices. These fuel inflation and erode the incoming PM’s room for maneuver. This precarious economic landscape is not new; it’s a culmination of years of sluggish growth, poor confidence, and stagnant living standards.

Household finances are weak, and productivity remains stuck in neutral. The first quarter saw modest growth at 0.6%, but turning headline economic growth into tangible improvements in wages and living standards will be Burnham’s challenge. This requires not just policy tinkering but a fundamental shift in how the UK approaches economic development.

Burnham’s inheritance is not dissimilar from that of his predecessor; it’s largely the same economic data with a new PM at the helm. The renewed conflict in the Gulf has added an extra layer of complexity, with higher energy prices threatening to push inflation back up and squeezing household budgets. This precarious situation will test Burnham’s mettle as he navigates the delicate balance between maintaining market confidence and pursuing structural reforms.

The bond markets pose a significant threat, with investors increasingly wary of Britain’s debt levels, which now stand at around 95% of GDP. If markets lose confidence, they could increase interest rates further, crushing Burnham’s government just as they did Liz Truss after her mini-Budget. Inflation remains another major concern, whether it comes from the Gulf, public sector pay, or a poor supply side.

Despite these risks, there are opportunities for growth if Burnham focuses on structural reform rather than headline-grabbing spending. Economists believe he could genuinely become a supply sider who generates higher growth by pursuing a Property Tax reset and a Brexit reset. This would require courage and a willingness to challenge the status quo, but it’s a path that could reshape Britain’s economic trajectory.

Burnham’s years as mayor of Greater Manchester offer valuable insights into place-based approaches to policymaking. By embracing this model nationally, he can tackle issues like housing, transport, employment, and health more effectively than through top-down national policies. Business leaders see retail as another opportunity for growth, with the right reforms able to drive investment, support jobs in every postcode, and keep household essentials affordable.

However, Burnham’s first task should be to reassure markets that little is about to change. This means being clear on fiscal sustainability, communicating effectively with investors, and avoiding unnecessary risks. Major fiscal loosening would indeed be a high-risk strategy, particularly if not accompanied by structural reforms. By taking this approach, Burnham can build trust and create space for meaningful economic reform.

Ultimately, Burnham’s success will depend on his ability to balance the competing demands of market confidence, political stability, and economic growth. The path ahead is fraught with challenges, but it also presents opportunities for a new kind of economic policy that prioritizes long-term sustainability over short-term gains.