A report from the International Monetary Fund this week highlighted the baggage that still hangs over the world’s fifth largest economy: a 2022 budget with unfunded spending hikes and tax cuts that sparked an investor revolt leading to the ouster of Liz Truss as premier after only 44 days.

“Market feedback suggests that the September 2022 gilt market turmoil marked a structural shift in the fragility of the gilt market,” it said. “Policy credibility and predictability are key to strengthening market confidence and reversing the impact of the September 2022 episode.”

The IMF added that foreign investors have become bigger participants in the U.K. bond market, estimating that global factors accounted for 60%-90% of the variation in yields between 2020 and 2026.

That could leave the U.K. more vulnerable to volatile capital flows and “fast money” that’s more price sensitive, the report warned.

Burnham will likely chafe under that kind of influence. He complained in September 2025 that “We’ve got to get beyond this thing of being in hock to the bond market.”

But the Labour Party leader will not escape its grip, according to Ed Yardeni, the Wall Street veteran who coined the term “bond vigilantes” in the 1980s, referring to traders who protested huge U.S. deficits by selling off bonds to push yields higher. 

“Britain soon will have a new leader. But investors know it’s the bond market that will call the shots in the $4.2 trillion economy no matter who sits in the prime minister’s office,” he wrote in a note earlier this month, adding Burnham “will inherit the same hyper-reactive bond market” that sank Truss.

Bond investors kept former PM Keir Starmer and Chancellor Rachel Reeves on a short leash and sent yields up in response to their borrowing plans.

For now, the market appears willing to give Burnham the benefit of the doubt, albeit without giving him much leeway, Yardeni observed, pointing out that foreigners hold as much as 30% of U.K. government debt.

Reports indicating that Shabana Mahmood is the favorite to be named Chancellor of the Exchequer have cheered markets. But Yardeni cautioned that “Bond Vigilantes are restless.”

For his part, Burnham has view to be a pro-business leader, while emphasizing small local businesses over large firms.

Still, he faces a tough balancing act: reviving moribund growth while also maintaining a fiscal policy that satisfies the bond market.

Threading that needle could force Burnham to make politically unpalatable choices. The IMF report said hiking taxes on top earners would hurt the economy.

“Targeted increases in marginal tax rates towards the bottom of the earnings distribution, accompanied by more generous in-work transfers, would be more efficient,” the IMF added.