The Prime Minister has appointed former Defense Secretary John Healey as Chancellor in his new Cabinet.
In the run-up to Andy Burnham’s administration, former Labor leader Ed Miliband was widely tipped for the role of the Treasury.
However, in recent days, Home Minister Shabana Mahmood has emerged as the frontrunner.
But in the end, Healey was the surprise appointment to head the Treasury, as Miliband was appointed Foreign Secretary and Mahmood remained at the Home Office.
Angela Rayner has returned to her former role as Housing Secretary after resigning last year over tax controversies.
Healey immediately tried to calm the markets with his first words as chancellor.
Speaking to broadcasters this morning, he said: “Fiscal control is the first duty of every chancellor – it is mine.
“And budgetary credibility is the foundation of economic stability and national security.”
Early indications are that his words were well received by investors as government bond yields fell and sterling rose.
Yesterday, Burnham’s first comments as prime minister pushed the 10-year yield up 8 basis points to 5.049% and pushed 30-year borrowing costs to their highest level since late May, according to financial advisory group deVere.
AJ Bell, head of markets Dan Coatsworth, said: “The surprise appointment of John Healey as Chancellor has not troubled the markets as he is seen as a safe pair of hands.
“His extensive parliamentary career, including roles at the Treasury, is seen as a good fit for him.
“Bond markets responded favorably, with government bond yields falling after a jump yesterday afternoon as Prime Minister Andy Burnham made comments on budget flexibility.
“While he has promised to stick to the existing rules, he suggested there is some wiggle room.
“The comments initially caught the market off guard, but Burnham quickly said he wouldn’t take any chances with the economy.”
But DeVere’s CEO Nigel Green remains skeptical of Healey’s reassurances and warns against reading too much into the early market moves.
He says: ‘This is a chancellor whose defining characteristic in government was asking the Treasury for more money as defense secretary until his resignation from Keir Starmer’s government.
‘Now it’s the man who spent years trying to loosen the purse strings.
‘Healey could determine how the flexibility is used.
“He was never appointed to prevent it because it was never the plan to prevent it.”
He added: “Healey’s appointment is not evidence that the pressure to spend has disappeared.
“It’s evidence that Burnham knows the market needs reassurance as he figures out how far he can go.
“Government bond yields at five-week lows and a marginal rally in sterling reflect relief that Monday’s worst-case scenario has not been repeated, that’s all.”