The gilt market took Chancellor John Healey’s first Budget in its stride. The 10 year gilt yield fell 2 basis points to 5.323 percent on Wednesday and the 30 year fell 3 basis points to 5.711 percent, sterling slipped 0.1 percent to about 1.3298 dollars, and strategists quoted by Reuters called it the boring Budget bond markets had demanded. Gilts outperformed US Treasuries by about five basis points on the day.
The numbers behind the calm are thinner than the reaction suggests. Healey said headroom against the government’s fiscal rules stands at 15 billion pounds, in line with a Reuters poll of expectations but down from 23.6 billion pounds in March, squeezed by higher energy prices and borrowing costs. The Office for Budget Responsibility cut its 2027 growth forecast to 1.0 percent from 1.6 percent in March and raised its inflation path, and the Budget absorbs roughly 14 billion pounds a year of extra debt interest compared with the March forecast rather than raising broad based taxes to cover it. The Debt Management Office’s 2026-27 net financing requirement was reported at 258.6 billion pounds, up 7.4 billion from 251.2 billion.
The bank tax outcome resolved the pre-Budget uncertainty in lenders’ favour. The surcharge on bank profits above the threshold rises from 3 percent to 6 percent, partially reversing the cut from 8 percent three years ago and less severe than the market had feared; the largest lenders’ shares rose more than 3 percent in afternoon trade. A 100 pound energy payment reaches about 20 million households.
For rates, the Budget removes a fiscal accident from the Bank of England’s November 5 decision without removing the problem. Inflation near 3.5 percent, a possible hike on the table, and a fiscal cushion of 15 billion pounds mean the next energy or growth shock lands directly on either the OBR arithmetic or the gilt curve. The market’s verdict on Wednesday was relief that this Budget was not that shock.