Gilt yields rise as Chancellor’s “fiscal sleight of hand starts to receive an economic reality check”

"What began as a market honeymoon with Labour's first Budget in over a decade quickly became a sobering fiscal hangover, with traders rushing to reprice Gilt yields as the realities of yesterday’s Budget come firmly into focus. There is no escaping the significant new borrowing on the horizon as Chancellor Reeves’ fiscal sleight of hand starts to receive an economic reality check. This is further compounded by the backdrop of tepid growth, illustrated by the OBR’s long-term forecasts, raising real concerns about the suitability of additional borrowing when economic uncertainty reigns supreme."

"Yesterday’s Budget signals continued public sector expansion without reform, supported by £170bn in new borrowing and £40bn in increased taxes on productive sectors. This comes just 2 months after Keir Starmer emphasised growth and wealth creation. The Budget imposes austerity on the private sector, leading to higher inflation, increased borrowing and the highest overall tax burden since 1948. The bond markets are reacting negatively, with 10-year gilt yields rising 9 basis points to an 11-month high following the Chancellor's speech. In currency markets, the Pound may hold its own against the Euro as the expectation is for the Bank of England to maintain higher interest rates longer than the European Central Bank but this is very dependent on what happens next in the bond markets."

"Following yesterday's Budget, bond markets have opened this morning with a negative reaction to the news after digesting the level of borrowing required over the next few years. With 10-year Gilts already higher, this will be key to watch over the coming days. So far, though, this is not a vote of confidence from the markets. In fact, it's the very opposite. Pound Sterling exchange rates have also opened lower today with GBPUSD trading at 1.2960, and GBPEUR trading at 1.1940- both considerably lower than where they were trading at before the announcement. I think this trend will continue today and tomorrow, and then next week attention will shift across the pond to the U.S elections and, following the result, we will find our next direction for GBPUSD prices."

"It's interesting how the Gilt market started to sell off on the OBR report, and not the Budget itself. The OBR report was in fact largely scathing and I think there is going to have to be some U-turn on this. The gilt market is showing that the OBR has effectively hammered the UK as a business entity. It's going to be low growth, low wage growth and just generally rubbish for the next five years, as everyone predicted and as the OBR confirmed. However, OBR predictions should be taken with a pinch of salt, and shouldn't be completely used to confirm a prior view, since their record is abysmal at predicting anything other than PSNB."