UK Chancellor John Healey delivered his first Budget on Wednesday, opting for a modest package of tax and spending changes that soothed gilt investors. He raised taxes on banks while promising household energy support, setting the fiscal headroom target at £15bn, aligning with market expectations. Sterling held steady below $1.33, and the UK 10-year yield remained flat at 5.34 per cent, outperforming US Treasuries.
Gordon Shannon of Twenty Four Asset Management noted Healey delivered the "uneventful Budget he aimed for," boring investors into submission. The Debt Management Office announced a small increase in gilt sales from £246bn to £251bn, shifting towards shorter-term borrowing. Andrew Chorlton of M&G Investments said the chancellor "threaded the needle quite well," resulting in a quiet market day.
However, he warned that avoiding a bond wobble is only half the job, as reduced headroom and downgraded growth forecasts leave less room for error. UK long-term borrowing costs remain the highest in the G7, with inflation persistently above the Bank of England's target due to ongoing Middle East conflict. UK equity markets ticked up, with banking group Lloyds Banking Group up nearly 2 per cent and gambling group Entain jumping 5 per cent.
The Office for Budget Responsibility reported fiscal consolidation had slowed, increasing borrowing by £8bn in 2026-27 and £4bn in 2027-28 before planned cuts reduce it later. Stephen Jones of Aegon Asset Management noted the fiscal discipline talk is weighed against lower growth and higher energy costs.
Source: Financial Times Markets · Summarized by HeadlinesBriefing