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Article Tags:
budget
gilts
autumn budget
bonds
andy burnham
john healey
chancellor of the exchequer

Investors warn Chancellor John Healey over deficit cuts as gilt yields spike

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Article Tags:
budget
gilts
autumn budget
bonds
andy burnham
john healey
chancellor of the exchequer
Investors warn Chancellor John Healey over deficit cuts as gilt yields spike

Chancellor John Healey and Andy Burnham

Investors and analysts have warned Chancellor John Healey not to give up on the government’s efforts to reduce the UK’s fiscal deficit in his first Budget, following a spike in government bond yields in recent weeks.

Mr Healey is preparing to unveil his first Budget on October 28 at a time when investor anxiety over the scale of deficits in major economies and inflation fears are pushing up borrowing costs.

The chancellor was urged to keep any extra debt issuance for investment next year below £10bn, with analysts stressing it needed to be coupled with discipline on day-to-day spending.

Matthew Amis, investment director at Aberdeen, told the Financial Times: “Anything more than that will be seen as a red flag to the gilt market. If I were John Healey, I would make this as much a non-event as possible.”

Simon French, chief economist at Panmure Liberum, added: “This is not a time in global markets to be brave.” Allies of Mr Healey claim the chancellor wants the Budget to be “straightforward and well-managed”.
 
They told the paper that Mr Healey will stick “well within” his self-imposed borrowing rules. A Treasury insider added: “Strong public finances are a precondition of everything that we do.”
 
The insider added that plans to invest in infrastructure, including the use of arm’s-length public bodies, would “not be on a scale that it would cut across our borrowing objectives at all”.
 
The Prime Minister has hinted at larger spending commitments in the future following his decision to back an increase in defence spending to 3% of GDP by the end of the decade.
 
It comes as anxiety among investors is rising across the globe following a sell-off in US long-term government bonds, as the yield on 30-year Treasury bonds was at 5.27% in New York morning trading, while the yield on 30-year UK gilts rose to 5.81%.
 
Most economists expect Budget headroom, the buffer taking into account new policies, to decrease significantly, with analysts expecting a figure between £10bn and £15bn when the Budget is delivered.
 
The Treasury said: “Fiscal discipline is the bedrock of economic stability and national security. The chancellor and Prime Minister are in lockstep that the government will meet the fiscal rules, with a buffer against uncertainty. We’re cutting the deficit faster than any other G7 economy to the lowest level in six years.”
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