LONDON, UNITED KINGDOM – MARCH 26, 2025: Britain’s Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street before the announcement of the Spring Statement in the House of Commons on March 26, 2025 in London, United Kingdom. (published by Getty Images)
Viktor Szamanowicz | Future Release | Getty Images
UK government debt spending surged on Wednesday when the country’s Office for Budget Responsibility unexpectedly released its economic and fiscal forecasts ahead of the autumn budget.
Yields on benchmarks 10 years’ gilt The latter was seen 6 basis points lower, while short-term 5 year gilt Yields fell by more than 5 basis points. When the report was initially released, the 10-year yield fell as much as 4 basis points, before reversing course to gain 4 basis points.
UK 10-year gilt
The OBR is scheduled to publish its forecasts after the Budget, which Finance Minister Rachel Reeves begins to deliver to Parliament at 12:30 p.m. London time (7:30 a.m. ET).
As she began to speak, Reeves labeled the initial publication of the OBR’s view “very disappointing and a serious mistake on their part”.
In a statement, the OBR said a link to its view went live on its website “early this morning” and had since been removed.
“We apologize for this technical error and have launched an investigation into how this happened,” it said, adding that the error would be reported to its supervisory board and relevant government bodies.
In its report, the fiscal watchdog detailed tax-raising measures that will be announced in the budget, including a freeze on income tax thresholds, a tax on private pension contributions of more than £2,000 a year, a new mileage-based tax on electric vehicles and an annual tax on homes worth more than £2 million ($2.6 million).
The Budget will see tax on dividend, property and savings income rise by 2 percentage points, the OBR also revealed, which is expected to raise £2.1 billion.
New spending policies, including removing the so-called two-child limit on welfare, will increase public debt by £7 billion next year, the OBR predicts, and by £11 billion in 2029-30.
The OBR cut its UK growth forecast by 0.3 per cent, citing lower underlying productivity growth, saying it now expects gross domestic product to grow by an average of 1.5% over the next five years.
As Reeves unveiled the budget, the British pound rose 0.2% Both against the US dollar And Euro. Sterling was last seen up 0.5% against the greenback at $1.32.
British Pound vs. US Dollar
Why is bond yield important?
In the run up to the budget, Investors told CNBC Bond markets wanted to see Reeves cut public spending and raise taxes, which would be unpopular with voters.
Bond yields and prices move in opposite directions, so when investors are reluctant to lend to the government, bond prices fall and yields rise.
The UK government currently has the highest borrowing costs of any G7 nation, with its 30-year gilt yield well above the critical 5% threshold and spending much of this year at multi-decade highs.
A dramatic rise in gilt yields — essentially the amount of interest a government pays on its debt — could also have a wider impact on the overall economy.
While bond yields reflect the cost of borrowing for the governments that issue them, they can also affect Mortgage rates, investment returns, the broader economy and personal loans.
Back in 2022, Prime Minister Liz Truss Unfunded tax cuts A bond sell-off was launched Long-term effects on the economy And She resigned after just 44 days on the job.
