John Healey named as Chancellor as borrowing costs jump to two-month high

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Government borrowing costs lifted higher and the value of the pound weakened amid caution from City traders ahead of John Healey’s appointment as the next Chancellor of the Exchequer.

Andy Burnham appointed the former defence secretary in a surprise move after speculation that Shabana Mahmood and Ed Miliband had been frontrunners for the role.

The appointment followed a largely steady session for the financial markets on Monday after Andy Burnham officially became the next Prime Minister.

Rachel Reeves lost the role of chancellor as part of Andy Burnham’s Cabinet reshuffle (Yui Mok/PA) (PA Wire)

However, they took a downturn during the afternoon after Mr Burnham told reporters he would use “any flexibility” he could find within existing fiscal rules.

The yield on 10-year Government bonds, called gilts, moved eight basis points higher to 5.049% at the end of London trading.

It meant the cost of UK state borrowing had risen to its highest level for around two months.

The value of gilts decrease as the yield on them increases.

Mr Burnham said he will “stick to the fiscal rules” agreed by Sir Keir Starmer’s administration and added he will not be “taking risks with the economy”.

As the new Prime Minister started to make appointments for his first Cabinet, Rachel Reeves confirmed she had left the role of chancellor.

Mr Healey will be tasked with helping steer the country through a testing economic situation.

Growth remains weak, state borrowing is elevated, the national debt is at its highest level since the 1960s and the labour market faces continued pressure.