Oil and Bond Sell-off Wipe Out Half the Chancellor's Budget Buffer
Brent rose almost 5% to $108 on Thursday and the ten-year gilt yield reached 5.39%, close to last week’s nineteen-year high, with the American ten-year at 5.17% and its highest since 2007. Analysts say the move has erased more than half of the £24bn of headroom built in March. The Bank of England expects the energy price cap to rise by as much as 24% in the new year. The Treasury concedes it has “less room” than a month ago.
Two of the Bank’s deputy governors spent Thursday explaining why this gets worse before it gets better. Clare Lombardelli, speaking in Warsaw, said policy “is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity”; Sarah Breeden warned that “the larger and longer the shock, the more likely it is that we’ll see the material second-round effects that policy needs to respond” to. So the Chancellor faces a rising interest bill, a shrinking buffer and a January energy shock at once, with officials working “at pace” on consumer support while ruling out blanket subsidies of the kind that ended a premiership in 2022. Watch whether the buffer itself is quietly redefined rather than rebuilt.