UK PM Burnham sows seeds of "Breturn" that could excite markets

British Prime Minister Andy Burnham has reignited interest in re-engaging with the European Union, including the possibility of rejoining the bloc. This move could have significant implications for markets, as even the slightest hint of a potential return to EU membership can impact sterling assets. The Labour Party's shift towards EU relations has been ongoing since the party's return to power in 2024, but recent geopolitical developments and the new prime minister's commitment to his beliefs have accelerated the idea.

Burnham, who campaigned to remain in the EU during the 2016 Brexit referendum, argued that all options for Britain's relationship with European partners should be considered. While full re-entry into the single market or EU membership would require time and face domestic opposition, the direction of travel could generate investment and market excitement before any concrete decision is made.

Burnham emphasized that Brexit has caused more harm than good, and public opinion and many economists agree. The economic impact of Brexit has been substantial, with estimates ranging from a 4-percentage-point hit to UK productivity to a potential 15 percentage points of imports and exports lost over the long term. The Office for Budget Responsibility estimates the cumulative GDP hit at up to 4-6 percentage points.

The public sentiment is also shifting, with polls indicating that 55% of respondents feel Brexit was a wrong turn, and 52% favor rejoining the EU. While Burnham's speech did not immediately spark financial-market reactions, bond markets focused on domestic reforms, and sterling has gradually recovered since the 2016 referendum. Economists believe Burnham's speech could be a pivotal moment for the UK economy, potentially serving as a bullish inflection point for sterling assets.