Britain cannot afford Andy Burnham becoming Prime Minister, it was claimed on Friday as financial markets took fright at the growing possibility of the left-winger ousting Keir Starmer.

The pound tumbled and the cost of Government debts soared yesterday, with economists predicting the pressure will continue throughout a likely Labour leadership contest.

Business leaders also warned that political uncertainty will further damage the economy and the UK's reputation as a place to do business.

And there are fears a Government led by the Greater Manchester Mayor, who is trying to get back into Westminster so he can challenge Sir Keir, would cost taxpayers hundreds of billions in pounds more in higher borrowing and spending under what he has called 'business friendly socialism'.

Mr Burnham has previously suggested he would renationalise the water and energy industries, embark on a huge new council housebuilding programme and subsidise more public transport – while also claiming the UK should stop being 'in hock to the bond markets'.

The contest to replace him as mayor alone will cost taxpayers an estimated £5million while the by-election Makerfield by-election could cost several hundreds of thousands more.

Even the Labour Party may not be able to afford the price of Mr Burnham's ambition, with sources telling the PoliticsHome site that the party could be dragged towards 'bankruptcy' because of the cost of sending staff to Makerfield for the by-election as well as the much larger mayoral contest, plus a leadership contest, all coming off the back of local elections.

Last night Reform's Treasury spokesman Robert Jenrick told the Daily Mail: 'Andy Burnham said to ignore the markets, but even he can't avoid the spiralling costs his behaviour is causing. 

'The billion-pound cost of his self-indulgent actions will inevitably be paid for by working people in higher taxes. 

'He's putting his selfish politics before the interests of the British people.'

Shadow Chancellor Sir Mel Stride said: 'Burnham has proved he's just another Labour politician who doesn't understand how the economy works.

'When the country's finances are in a perilous position, he's the last thing we need.'

The turmoil in Westminster led to fresh ructions on global financial markets on Friday with bond yields hitting the highest level this century and the pound tumbling. 

The 30-year gilt yield, a key measure of how much it costs the UK government to borrow, surged to 5.859 per cent – the highest since 1998. 

And the yield on ten-year gilts hit 5.187 per cent – a level not seen since 2008 – pushing up the cost of servicing the towering national debt.

With the Labour leadership debate set to rumble on for months, James Smith, an economist at banking group ING, said: 'The biggest risk here is that investors begin to question the UK's longer-term fiscal discipline. 

'Gilt markets rely on foreign investors and any signs that fiscal dynamics risk turning unsustainable could quickly turn sentiment.'

Economists also warned the prospect of a lurch to the left following a protracted leadership contest will exert upward pressure on yields over the coming weeks – with higher borrowing costs feeding through to more expensive mortgages for millions.

And the pound crumbled against the US dollar, sinking towards $1.33, its lowest level for more than a month and down from above $1.36 at the end of last week. 

Sterling was also weaker against the euro, sinking to a five-and-a-half week low close to €1.16.

And Dame Amanda Blanc, Aviva chief executive, also sounded the alarm over Labour's leaderhsip drama, telling the Daily Mail 'it is harmful to a major economy such as the UK and how we are perceived abroad. 

'We don't operate in a vacuum, and we think it's very important that we get some stability'.