Wealth managers dumps UK bonds amid fears Andy Burnham will 'do a Liz Truss'

Investment firms have reduced their exposure to UK government bonds amid concerns over the incoming administration's fiscal plans

City wealth managers are selling UK bonds amid concerns that Andy Burnham could trigger a repeat of the 2022 gilt market turmoil when he enters Downing Street next week.

Rathbones Asset Management said it has reduced its holdings of gilts as the former Greater Manchester Mayor prepares to take office on Monday.

The £9.8billion investment firm is selling longer-dated Government debt as protection against what it described as the risk of potential "fiscal irresponsibility" under the incoming administration.

David Coombs, head of multi-asset investments at Rathbones, said: "The gilt market presents us with a real dilemma right now. One is that Burnham 'does a Truss', or at least appoints a chancellor that is fiscally looser than Rachel Reeves."

Government borrowing costs rose to their highest level in two months on Tuesday, adding to pressure on Mr Burnham to reassure financial markets over his spending plans.

The yield on 10-year gilts moved above five per cent for the first time since May, rising from 4.87 per cent at the end of last week.

Higher oil prices following Donald Trump's escalation of the conflict in Iran also contributed to the increase in borrowing costs.

The rise in gilt yields means the incoming Prime Minister is likely to face immediate scrutiny from investors over his fiscal plans.

Investors remain mindful of the market turmoil during Liz Truss's premiership in 2022, when her mini-Budget announced £45billion of unfunded tax cuts and gilt yields rose sharply.

Rathbones is not the only investment manager to reduce its exposure to UK Government debt.

Aberdeen Investments began reducing its £10billion gilt portfolio in May after Labour's local election results fuelled speculation about a leadership contest.

Following Sir Keir Starmer's resignation as Prime Minister in June, RBC BlueBay said it would avoid UK Government bonds because of increased market volatility.

Premier Miton Investors, which manages £9billion in assets, has also been selling gilts since Mr Burnham delivered his first major policy speech in Manchester.

Lloyd Harris, head of fixed income at Premier Miton Investors, said: "He's going for growth in every postcode. There doesn't seem to be a great deal of restraint there. To put it simply, do we want to take lots of risk in gilts? I think no, we don't."

Mr Burnham has said he will maintain Rachel Reeves's fiscal framework, under which day-to-day Government spending must be funded through tax receipts.

However, critics have pointed to policy proposals including tax cuts for lower earners and his previous suggestion that Waspi women should receive compensation worth billions of pounds.

Reform UK has estimated that Mr Burnham's policy commitments would require an additional £38billion to be raised from wealthier taxpayers.

Mr Burnham has not yet confirmed who will serve as Chancellor, although Ed Miliband has been identified as a leading contender for the role.

Rathbones has also shifted sovereign bond investments towards New Zealand, Australia, Norway and the United States, with Mr Coombs saying the move reflected what the firm sees as Britain's higher credit risk.