Ten-Year Gilt Touches Highest Since 2008; Half of Budget Headroom Feared Gone
The 10-year gilt yield hit 5.29% — its highest since 2008 — before a late rally pulled it back to close slightly down at 5.23%, with the 30-year touching 5.92%. Analysts believe higher rates could wipe out up to half of the £24bn headroom against the fiscal rules, just as the OBR takes its Budget snapshot; investors now expect three Bank of England rises to 4.5% within a year. “Debt interest is now one in every £12 the government is spending,” said the IFS’s Helen Miller.
The late rally was the day’s only mercy, and its timing is everything: the OBR’s yield snapshot — the number that becomes the Budget’s baseline — is being taken about now, meaning this fortnight’s trading writes October’s tax policy more directly than any cabinet meeting. Government insiders conceding the Chancellor cannot credibly present a Budget with less than double-digit headroom tells markets what to expect: consolidation, and the search for revenue that does not breach manifesto language. The crueller twist is monetary: three expected rate rises would lift mortgage costs precisely as Mr Burnham campaigns on cutting the cost of living — the bond market unpicking his programme from both ends. Thursday brings Mr Macron to Downing Street and Monday a growth speech from the Chancellor; both are now market events. Watch the 30-year — it moved first all week.