Budget plans of British finance minister Rachel Reeves are likely to push UK government bond issuance towards 300 billion pounds ($389 billion) this fiscal year, a roughly 6% increase on the existing target, a Reuters poll of bond dealers showed on Tuesday.
Reeves will seek to shift the world’s sixth-biggest economy, and Prime Minister Keir Starmer’s government, on to a new course on Thursday with big increases in spending, investment and tax.
Her plans are likely to increase the budget deficit and debt issuance – something that has caused unease among some investors, with the 2022 gilt market meltdown under the short-lived premiership of Liz Truss still fresh in the memory.
The median forecast among banks that can bid directly at government bond auctions – known as primary dealers – was for gilt issuance of 294 billion pounds in the 2024/25 financial year, up from the 277.7 billion under the current plans.
If the Debt Management Office (DMO) sells that many gilts in 2024/25, it would be the second-heaviest year for issuance on record, after the 2020/21 financial year when Britain was hit by the COVID-19 pandemic.
Investors expect Reeves will overhaul Britain’s fiscal rules to target a measure known as public sector net financial liabilities, replacing the current target of public sector net debt excluding the Bank of England.
Had that approach been used in the last budget in March it would have given the then Conservative government an extra 53 billion pounds ($69 billion) to borrow, according to the Institute for Fiscal Studies, a think tank.
However, the 14 dealers who took part in the Reuters poll expected she would try to keep financial markets onside by using less than half of that new headroom.
“We do not expect a plan that will shake the faith of gilt investors,” said Adam Dent, UK Chief Rates Strategist at Santander CIB.
The poll showed Britain’s headline budget deficit measure – public sector net borrowing – is likely to end this financial year at around 106 billion pounds, compared with a forecast of 87.2 billion published by the Office for Budget Responsibility in March.
Britain is also likely to raise extra funds by increasing net T-bill issuance by 6 billion pounds, up from zero under the current plans.
Respondents mostly expected the government to stick with its target of raising around 9 billion pounds from National Savings and Investments (NS&I), the government’s consumer savings arm.
The DMO is due to publish its updated remit for the 2024/25 financial year as soon as Reeves concludes her budget speech, which is due to begin at around 1230 GMT.
All figures in billions of pounds
2024/25 Gross gilt Net PSNBx
issuance T-bills
Median 294 6 105.4
Mean 296.3 7.1 105.1
High 315 16 109.5
Low 285.6 0 98
Bank of America 292.7 5 107.2
Barclays 298.3
BNP Paribas 304.9 98
Citi 287.7 16
Deutsche Bank 302.7
HSBC 288.6 6 104.2
JP Morgan 295 105
Lloyds Bank 297.7 5 109.5
Morgan Stanley 285.6 105.4
NatWest Markets 309.6 10
Nomura 315 0
RBC 293 6.5
Santander 286.3 10 106.6
UBS 291.7 5
($1 = 0.7701 pounds)
(Reporting by Suban Abdulla and Andy Bruce）
