The pound rose 1% against the US dollar this week as financial markets rallied to reports that Shabana Mahmood is set to become the UK's next chancellor. Kathleen Brooks, research director at XTB, said the move tells two things about Andy Burnham's incoming government: “firstly, the market trusts Mahmood to take a sensible approach to economic policy, and to tackle the hard questions of welfare spending, secondly, Burnham is willing to have those to the right of the Labour party in his cabinet in key economic roles.”
Burnham will move into Downing Street on Monday after the resignation of Sir Keir Starmer, following a transition period that saw him win the leadership. Officially, his team says no cabinet decisions have been taken and announcements will not be made until Monday. But that has not stopped speculation – or attempts to influence his choice for Number 11.
“Pound rallies 1% as Shabana Mahmood tipped for chancellor in Andy Burnham's cabinet, sources confirm.”
Mahmood, the current home secretary who lacks an economics background but sits on Labour's right, has been the subject of “live discussions” within Burnham's circle, the BBC has been told. The Financial Times, citing three sources close to Burnham, reports it as a certainty. The Press Association, however, reports that Mahmood is keen to remain at the Home Office and see through the changes she has brought to the asylum system – a portfolio where she cracked down on immigration, according to City A.M..
The idea of Mahmood as chancellor has caused upset on the left of the party, with The Times reporting that those figures would much prefer Ed Miliband in the role. In late June, Miliband was the bookmakers' strong favourite for the job, and he is politically closer to Burnham than other rivals. But opinions differ on whether the former Treasury adviser would receive the backing of financial markets. Some see Miliband as an inflation risk, blaming his drive for net zero as energy secretary for the UK's high energy prices compared to other countries, an analyst reputation that, whether accurate or not, could affect borrowing costs.
Whoever takes the Treasury will face a daunting in-tray: high debt, low growth, welfare reform, defence spending, and the economic fallout from the US-Israel war with Iran. The decision rests with Burnham, who must balance market confidence, party unity and the sheer scale of the challenge. All eyes will be on Monday's announcement.