Major bond investors are urging UK Chancellor John Healey to deliver a disciplined and pragmatic Budget this week, avoiding changes to fiscal rules amid rising borrowing costs. The UK’s 10-year gilt yield surged to 5.5% earlier in October, its highest since 2007, driven by a global debt sell-off and inflation. FT calculations suggest this could create a near-£12bn hole in public finances, sharply reducing Healey’s fiscal headroom. However, gilts have recently outperformed Eurozone bonds, supported by signals from Prime Minister Andy Burnham’s government that it will maintain fiscal discipline inherited from Sir Keir Starmer. The 10-year yield has eased slightly to 5.37%.
Fund managers from BNY Investments, M&G, RBC Blue Bay, and Vanguard shared their expectations. April La Russe of BNY Investments stressed the need for a credible commitment to existing fiscal rules, with a £15–20bn buffer to absorb shocks. Andrew Chorlton of M&G warned against any mention of wiggle-room or increased borrowing, calling for a disciplined Budget to restore investor confidence. Mark Dowding of RBC Blue Bay suggested a minimal Budget with £15bn of headroom might suffice, deferring major tax and spending decisions until after the 2027 election. Roger Hallam of Vanguard advocated for targeted, temporary energy support but opposed unfunded permanent spending, emphasizing the importance of fiscal credibility in a competitive global capital market.
Source: Financial Times Markets · Summarized by HeadlinesBriefing