Sir Keir anticipates there will be a new Prime Minister in office before parliament returns in September, with Mr Burnham widely considered the frontrunner to take over.
Some of the most important questions for the City are around Mr Burnham’s potential economic agenda, particularly his approach to taxes, borrowing, and spending, alongside his choice for Chancellor.
Here’s how the leadership change might affect the UK economy and the financial markets.
What has Andy Burnham said about economic policy?
Mr Burnham has said that he would stick to the fiscal rules set by Chancellor Rachel Reeves and has agreed that the UK needs a plan to reduce its debts.
This implies that he does not want to spook the country’s bond markets by indicating that, at least in the short term, he would not set out to substantially increase government borrowing.
He has also committed to the Labour party’s manifesto pledge not to raise income tax or national insurance contributions for working people.
Prime Minister Sir Keir Starmer resigned outside Number 10
PA
However, the politician spoke about there being a “final chance to change” after his by-election win, and laying out his vision for the UK economy.
This included calling for the need to bring down water and energy bills and rail fares, having previously advocated for key utilities to come under greater public control, and the “re-industrialisation” across the north of England.
What is happening in the financial markets?
Traders in the financial markets had already priced in a victory in the Makerfield by-election and there was no big immediate reaction to Sir Keir’s resignation speech.
But the political upheaval that comes with the Prime Minister’s resignation and the ensuing leadership challenge could create unease in the markets, which favour stability and certainty.
One of the biggest concerns for the financial markets will be who will take up the role of chancellor under a new Cabinet.
Dan Coatsworth, head of markets for AJ Bell, said: “Burnham’s choice of chancellor if he becomes Prime Minister could have a major impact on bond markets.
Mr Burnham is widely tipped to be Sir Keir’s successor
PA
“Bond investors like boring and dull – they want someone who has a plan where the maths stacks up and they stick to it.
“Former transport secretary Louise Haigh is seen as one of Burnham’s closest allies, but a fraud conviction could stop her from being the country’s numbers person.
“Ed Miliband is also being touted as a potential candidate for chancellor and would bring considerable experience from prior senior political roles.”
What do economists think could happen?
Some economists have suggested that Mr Burnham is likely to lean towards the left of his party when it comes to future economic policies.
Rob Wood and Elliott Jordan-Doak, economists for Pantheon Macroeconomics, said he could “pitch to Labour MPs’ left-leaning instincts for more spending, funded by higher taxes and moderately looser fiscal rules, as well as additional regulation”.
But they added: “We think Mr Burnham would be wary of a big bang fiscal change, because he needs to avoid a repeat of the gilt market meltdown that torched the previous Conservative government’s reputation for economic competence.
“But risks clearly lean to more spending.”
Ultimately, the City will be wanting certainty over the next leader and their plans for the economy and will be nervous about any plans that signal unfunded spending.
Kathleen Brooks, research director at XTB, said Mr Burnham would have to “work to persuade financial markets that he is the right man for the job to grow the UK economy and get debt back under control”.