[MARKET ANALYSIS] Vote count continues in the UK Makerfield by-election, results expected from 03:00BST.

Updates since polls closed:

• Turnout was confirmed at 58.75%, above the 2024 general election turnout for Makerfield of 52.5% but shy of some projections for around 65%.
• Various sources across multiple outlets broadly report the same theme that Labour appears to be in the lead, based on some early sampling. A breakdown via The Guardian has a Reform source adding that they believe it is "fairly close" and that "no one's running away with it". Additionally, a Labour source outlined that it does not appear that Restore has hit the levels it was looking for, with around 7% possible; earlier, Restore's Lowe suggested they would have around 10%.

Commentary on the above:

• The turnout doesn't add too much to the narrative. Aside from illustrating the pertinence of the by-election as effectively deciding whether Burnham can become UK PM or not. Note, Labour sources suggest the turnout was roughly as they expected, a point that could add credence to reports from Labour sources on how the count is going.
• Language from Reform is not a concession that the by-election has not gone their way at this stage, with the commentary potentially more expectations management than anything else. Nonetheless, it is not indicative of a Reform upset.
• Reminder, results are not expected until after 03:00BST.

Potential Reaction:

• Reminder, GBP was ultimately little changed following the BoE, while Gilts saw some modest upside as the statement chimed with the narrative that the BoE is on-hold for the foreseeable.
• Assuming that the next UK PM is to the left of Starmer, then the bias for UK yields is to a steeper curve. For the 10yr, Pantheon Macroeconomics calculates that political risk is currently adding 12-24bps to the UK’s 10yr yield, and a Burnham premiership would add an additional 7-14bps. Moving to Sterling, the main case for weakness potentially comes via a Burnham loss in Makerfield, as it will speak to the narrative around a rejection of the main political parties and will support calls for Reform to win the next general election (no later than August 2029). If Burnham wins, the reaction is more nuanced and potentially depends on whether there will be an orderly transition from Starmer to Burnham, or if there will be a protracted leadership contest and whether other candidates, such as Streeting, get involved. As such, participants may wait for more details to emerge around the near-term leadership situation and then, assuming Burnham does take power, the policy plans of his premiership before adjusting significantly.
• Additionally, and again assuming a Burnham victory, who he appoints as Chancellor will be key. If it is, as recent reports are pointing towards, current Energy & Net Zero Secretary of State Ed Miliband, his appointment may potentially enhance the soft-left assessment of and reaction to a Burnham government; i.e. adding to Gilt pressure.

Immediate Next Steps

• Assuming a Burnham victory. At some point on Friday he will likely do a speech acknowledging the result. This could come in proximity to the result announcement (expected 03:00BST), but there is no guidance just yet. From this, we look out for the risk of him effectively sparking a leadership contest against PM Starmer at that point, though this is not expected. The current expectation is that Burnham will allow a short period of time for Starmer to make preparations for announcing a timetable to step down, a move that could prevent a formal leadership contest from taking place. However, there is a risk that another candidate could still launch a challenge in the interim. If Starmer does announce a timetable, focus from that statement will be on whether he outright endorses Burnham or not. As a reminder, Starmer continues to state that he would fight any leadership challenge.