Sterling climbed to its highest level in two months last night as Ed Miliband looked to have been snubbed as Andy Burnham’s pick for Chancellor.
Shabana Mahmood was widely reported to have emerged as the leading candidate for No11, with Mr Miliband blocked by the incoming Prime Minister’s allies.
The pound then rose from $1.33 in early trading on Wednesday to $1.35 by the late afternoon – its strongest point since May 13.
Sterling also reached a one-year high against the euro at €1.18, indicating traders expected Ms Mahmood to take a more fiscally cautious approach than her Cabinet colleague.
Ms Mahmood is believed to have held talks on the economy with Mr Burnham last week, though their conversation primarily centred on her brief of home affairs.
Either way, the Makerfield MP’s allies are said to consider her the best pick for the role under a “broad church” Cabinet.
After he announced his intentions to stand in Makerfield, the first step on his short road to seizing power, the pound fell to a one-month low.
But since his by-election victory, Mr Burnham has taken a series of steps to reassure the markets.
In his first major speech after returning to Westminster, he vowed to stay inside Labour’s fiscal rules and turned away from his warnings that Britain was “in hock” to the bond markets.
He then brought in a team of respected economic advisers including Andy Haldane, the former Chief Economist to the Bank of England, the former OBR chairman Richard Hughes, and ex-Treasury Minister Lord O’Neill.
But he appears to have shot down Mr Miliband’s hopes of taking over at the helm of the Treasury – despite working with him for weeks to shape his economic plans.
During that time, the Energy Secretary has faced hostile briefings from rival Labour camps, though his supporters claim he is the only candidate with the experience and vision to turn the economy around.
He has been a long-standing Burnham ally, and was the first minister to urge Sir Keir Starmer to go.
Despite this, the soon-to-be-Prime Minister’s inner circle are worried Mr Miliband is a “divisive” figure carrying substantial “baggage” from his five years leading Labour, according to The Times.
They argued that he would not pass the “sniff test” with the markets, a claim rejected by friends of Miliband.
Sources told The Guardian that no final decision had been made ahead of Mr Burnham’s arrival in No10 on Monday.
As well as the pound rising, Government borrowing costs dropped more sharply than in Europe and the US as investors purchased bonds on Wednesday.
Private surveys of City traders had been shared with Mr Burnham’s team over the past week.
In those surveys, the Square Mile was bracing for rising long-term borrowing costs if Mr Miliband replaced Rachel Reeves – a claim strongly disputed by the Energy Secretary’s allies.
They pointed out that markets have remained stable since he emerged as one of the frontrunners for the Chancellor role.
If Mr Miliband is snubbed for the No11 gig, he could instead take up Yvette Cooper’s post as Foreign Secretary.
Wes Streeting, the former Health Secretary, had previously been expected to take that role but may now miss out on a great office of state.
One ally suggested he could return to the Department of Health.
Convicted fraudster Louise Haigh, who became Sir Keir Starmer’s first Cabinet resignation in November 2024, is said to be in line to become the Chancellor of the Duchy of Lancaster.
Deputy Labour leader Lucy Powell, meanwhile, is being considered for Deputy Prime Minister, with Jonathan Reynolds slated to leave the whips’ office and return as Business Secretary.
Alan Campbell, who was moved from Chief Whip to leader of the Commons by Starmer last September, is in turn rumoured to be making a return to his old job.
