The Mayor of Greater Manchester’s announcement was followed by the resignation of Wes Streeting as Health Secretary.

Rather than mounting his own challenge, as had been widely speculated, Mr Streeting threw his weight behind Mr Burnham’s Westminster bid. Citing recent electoral gains for Plaid Cymru, the SNP and Reform, Mr Streeting warned of an “existential threat to the future integrity of the United Kingdom”.

Financial markets took a dim view of the political manoeuvring, with investors concerned that a Burnham-led administration would loosen the public spending taps. The sell-off in UK assets was compounded by renewed inflationary pressure as oil prices climbed once again.

Although government borrowing costs rose across Europe, the moves in UK gilts were notably more pronounced and were attributed directly to the prospect of a Burnham premiership.

The yield on the 10-year gilt, which reflects the effective interest rate paid by the Treasury on a decade-long loan, jumped to 5.11% from 4.99% at the open. At the longer end of the curve, the 30-year gilt yield climbed to 5.779%, underlining concerns about the sustainability of UK debt over the long term.

In currency markets, the pound slipped 0.3% against the US dollar to 1.3371 dollars, extending the sharp losses sustained late on Thursday in the immediate aftermath of Mr Burnham’s announcement. Brent crude, meanwhile, pushed above 109 dollars a barrel, up from 105.72 dollars the previous day, adding to the inflationary backdrop.

Russ Mould, investment director at AJ Bell, said that while there was no guarantee Mr Burnham would win either a by-election or the subsequent leadership contest, his previous remarks that the UK must stop being “in hock to bond markets” had unsettled investors and contributed to higher borrowing costs and a weaker pound.

Kathleen Brooks, research director at XTB, suggested the market reaction reflected a clear pecking order among the candidates. She said: “This is a sign that Burnham is the least market-friendly of all the candidates, as Wes Streeting’s resignation did not have the same negative effect on the pound.”

Nigel Green, CEO of financial adviser DeVere, said markets are beginning to fear a long leadership vacuum at the centre of government.

“Currency markets are starting to price political risk back into the UK,” he said. “Investors are looking at Westminster and seeing the possibility of months of infighting, uncertainty and distraction while major economic challenges continue building.”