5 Things Gilt Market Demands From Healey's First Budget
Britain's bond market will judge John Healey's first Budget on five things, and it's likely to deliver its verdict within minutes of him sitting down, warns the CEO ofdeVere Group, one of the world's largest independent financial advisory organisations.
The comments from Nigel Green come as the Chancellor rises in the Commons at 12:30pm GMT, with the Office for Budget Responsibility releasing its five-year economic and fiscal forecasts straight after.
Every Chancellor since 2022 has worked in the long shadow of Liz Truss.
Her Mini Budget that September promised around GBP 45bn of unfunded tax cuts, went ahead without an OBR forecast and sent gilt yields soaring.
Pension funds running leveraged liability-driven strategies were hit with margin calls they couldn't meet, the Bank of England launched emergency bond buying, and Truss left Downing Street after 49 days.
AdvertisementThe first test is fiscal headroom. Rachel Reeves had built the cushion against her borrowing rules to roughly GBP 24bn.
Higher yields and the energy shock from the Middle East war have since eaten into it, with economists now estimating anywhere between GBP 8.5bn and GBP 16bn.
The second is credibility, and how the cushion is assembled.
Third comes supply. The Debt Management Office's revised borrowing plan lands alongside the Budget, and a poll of all 15 primary dealers points to 2026/27 issuance rising by GBP 3.4bn to GBP 249.6bn, with roughly 42.7% expected in short-dated gilts.
The fourth is the OBR's view on borrowing and prices. Borrowing between April and September reached GBP 97.8bn, against a forecast of GBP 91.8bn.
Inflation jumped to 3.5% in September, above expectations, and with Bank Rate at 3.75%, markets are bracing for a possible hike on 5 November.
The fifth is whether the money can be raised at all.
With income tax, National Insurance and VAT ruled out, around GBP 5bn of tax rises on online retailers, gambling, bank profits and the tax gap is expected, alongside a contentious cut to Universal Credit health support for under-25s.
All five land on a market already on edge. Earlier this month the 30-year yield touched 6.05%, its highest since 1998, while the 10-year hit 5.527%, a level last seen in 2007.
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