A steady hand, and markets exhaled
John Healey's closely trailed budget eased nerves that the government might wander from its fiscal-discipline pledges. Columbia Threadneedle's senior economist, Anthony Willis, said, "Judging by the collective 'shrug' in financial markets, this budget has been a success in avoiding the dramas of recent years."
The tone showed up in bonds. Longer maturities outperformed, and the 10-year gilt yield slipped as low as 5.30%, a move of up to 4 basis points. By 3 p.m. in London, the 10-year's intraday swing was just 7 basis points, the narrowest budget-day range since 2020. That calm contrasted with bigger moves during Rachel Reeves' first budget in 2024 at 22 basis points and the 40 basis point whipsaw around Liz Truss's 2022 mini-budget.
Equities joined the advance. Relief that banks and gambling firms avoided harsher tax hits pulled the broader market higher. The pound trimmed earlier losses and hovered near unchanged at $1.33, following the cue from gilts.
Borrowing plan lands in line, with a twist in bill supply
Going into the speech, traders had largely bet on no major long-term giveaways such as hefty tax cuts or spending surges, and the borrowing blueprint mostly matched those expectations. The Debt Management Office said it would cut planned issuance of longer-dated gilts to £15.5 billion from £22.4 billion previously.
According to the Office for Budget Responsibility, the amount of fiscal headroom in 2029-30 comes to £15 billion ($19.9 billion). The setup matched comments from James Athey of Marlborough Investment Management, where he is a portfolio manager: "The communication leading in was 'fiscal responsibility' and he has professed as much at the dispatch box." He added that relatively flat debt to GDP projections and a falling deficit imply the OBR concurs.
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The bigger picture for gilts, and why it matters
Wednesday's gains reinforced the view that UK debt has looked comparatively steady next to euro area turbulence, notably in France. Even amid a global bond selloff tied to the US war on Iran, UK borrowing costs have risen less than in many peers. So far this month, gilts are up 1.9% in dollar terms, versus a 2.4% drop in French debt and an average 0.4% slide across developed European sovereigns, Bloomberg's index shows.
That backdrop matters for credibility. Bloomberg Economics notes UK bonds still carry a noticeable premium to reflect past shocks.
Bottom line for your portfolio
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