The International Monetary Fund has cautioned incoming UK Prime Minister Andy Burnham that the budget crisis triggered by Liz Truss in 2022 inflicted lasting damage, making the UK government bond market more sensitive to the nation's fiscal policy.

The IMF stated that a "regime shift" occurred in the bond market following the market turmoil sparked by former Prime Minister Truss's mini-budget nearly four years ago. Truss's plan, which involved increasing spending and cutting taxes with tens of billions of pounds in funding left unspecified, was ultimately withdrawn after facing strong opposition from investors.

Documents released by the IMF on Thursday alongside its Article IV consultation report indicate that domestic factors have become more significant in driving UK government bond yields, as Burnham faces pressure from the Labour left to boost public spending. The IMF urged the prime minister-in-waiting to adhere to credible and predictable fiscal policies to counter the effects of the Truss episode.

This serves as a stark warning for Burnham, who is set to become the UK's seventh prime minister in just over a decade on Monday, following Keir Starmer's resignation.

The IMF noted that between 2020 and 2026, global factors explained 60% to 90% of the fluctuations in UK government bond yields. Domestic factors became notably more important in 2022 and resurfaced in 2025 amid heightened uncertainty surrounding UK Chancellor Rachel Reeves's budget.

"Market feedback suggests that the turmoil in the UK government bond market in September 2022 marked a structural shift in market vulnerabilities," the IMF report stated. "Policy credibility and predictability are key to bolstering market confidence and reversing the impact of the September 2022 events."

The IMF's analysis shows that the 2022 events "appear to have increased the sensitivity of UK government bond yield volatility to global shocks."

The report also highlighted that structural changes in the UK bond market are another contributing factor. Demand for long-dated bonds from pension funds has weakened, while foreign investors have become more significant.

The report added, "The participation of foreign investors in the UK government bond market has increased, potentially bringing in a larger proportion of price-sensitive 'fast money' investors and making the market more susceptible to more volatile capital flows."