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The decline in borrowing costs has given British Prime Minister Rachel Reeves more room for manipulation as he tries to maintain her strict fiscal rules, but the finances remain unchanged against the country's worsening economic outlook. It remains, analysts warn.
The UK government bonds have erased most of the losses since Reeves' October budget, bringing long-term borrowing costs closer to the level that her tax and spending plans maintained before accelerated the sale of the gold leaf market Ta.
The 10-year gold leaf yield, which moves backwards to prices, fell low to 4.44% on Friday, reaching its highest peak in 16 years last month, close to its pre-budget level of 4.93%.
However, harsh forecasts from the Bank of England, which halved estimates of 2025 this week suggest that the government will struggle to rapidly reduce borrowing over the next few years.
“It just shows how quickly mood music changes,” says Nick Hayes, bond head at Axa Investment Managers. “A while ago, gold leaf was in the 'loop of destiny.' . . The yield was heading towards 5%.”
The gold leaf revival comes from a combination of global bond rallies and the BOE's outlook for interest rate cuts, which announced a quarter-point cut on Thursday amid signs flagging economic growth and easing inflation It's something.
The market move provided relief to Reeves as she attempted to maintain her voluntary fiscal rules that daily spending would be subject to tax revenue.
The office for budget responsibility said in October that the prime minister had £9.9 billion in headroom.
The subsequent rise in gold leaf yields has led economists to warn that such a thin room for maneuvering, the third lowest since 2010, has been wiped out by higher borrowing costs.
Andrew Goodwin of Oxford Economics estimates that gold leaf market Larry Reeves has around £5 billion at half the level of October, but is better than the negative position of January's selling depth. It's there.
However, he warned that Reeves' extra range had gained “thin compared to what would happen.” [the OBR] Change your growth or revenue forecasts.”
He added:
Many fund managers have conducted similar analyses, claiming that further spending or tax cuts will be needed to strengthen the UK's financial position.
Economists say if OBR sets downbeat economic forecasts similar to BOE estimates this week, it will increase fiscal pressure due to low tax revenue growth.
The BOE currently expects GDP to grow by just 0.75% this year, but can be picked up in 2026 and 2027, but the unemployment rate could rise to 4.75%.
It has also become more pessimistic about the percentage of the UK economy that can grow without pushing up inflation.
Central banks have slowed the UK's potential growth rate (often referred to as the “speed limit” of sustainable GDP growth) to just 0.75% by the start of 2025, in the acquisition of annual inventory on the supply side of the economy. He said he did. From 1.5% the previous year.
BOE said it expected potential growth to recover in the following years, leaving that forecast at 1.5%.
BOE chief economist Huw Pill said Friday that the banks “we are not in a position to declare work” when it comes to suppressing inflation.
“We need to maintain some limitations on our monetary policy stance,” he said, adding that higher than expected wage growth is a cautious reason for further rate cuts.
Some economists predict that OBR may ultimately be forced to reduce its forecasts of potential growth given the sustainedly disappointing performance of UK productivity.
As OBR forecasts are the basis of government budget plans, it will take a serious blow to the finances.
Rob Wood of Pantheon Macroeconomics said that the cuts to potential growth forecasts “has a really big impact on Rachel Reeves' headroom.”
The Prime Minister “desperately hopes” that the OBR will not decide to undertake such a downgrade, he added.
