Despite rising borrowing costs ahead of the UK’s budget announcement on October 30th, bond investors remain confident that Chancellor Rachel Reeves will prioritize fiscal responsibility. This confidence has kept the gilt market stable, avoiding major sell-offs in government bonds.
Reeves, who has ruled out significant tax increases, is expected to present a budget that focuses on improving public services and boosting infrastructure investment. While this could lead to increased borrowing, investors believe she will avoid actions that might disrupt the markets, preventing a repeat of last year’s bond market turmoil.
“The market seems to be giving Reeves the benefit of the doubt,” says [quote from a relevant analyst/economist]. “There’s an expectation that she will strike a balance between investing for growth and maintaining fiscal discipline.”
This sentiment is reflected in the modest rise in gilt yields, despite recent increases. Although 10-year gilt yields have reached their highest level since the July election, they remain below the peaks seen during last year’s crisis.
However, some analysts caution that market confidence could be shaken if Reeves’ budget strays from expectations. “Any hint of fiscal looseness could trigger a sharp reaction in the gilt market,” warns [quote from another analyst/economist].
All eyes are on the Chancellor’s upcoming budget speech, as investors closely assess her plans for managing the UK’s public finances.
