Gilt curve enters the budget above the OBR assumption

Headroom — the margin left to stay inside the fiscal rule — drops from £23.6bn in the spring forecast to roughly £15bn; the pre-budget working assumption was £10-12bn. The rule binds on 2029-30. Twenty- and thirty-year maturities trade 6-8 basis points above the ten-year, and yields beyond twenty years are at multi-decade highs. ING reckons debt servicing could rise by more than £11bn in 2029-30. Most of the buffer has therefore gone on rates rather than on policy choice.

The constraint is reshaping the issuance mix. The April forecast put the 2026-27 gross financing requirement at £268bn, the net requirement at £251.2bn and planned gilt sales at £246.2bn. Newsquawk expects gross and net needs to climb by £8-15bn and gilt sales to rise by £0-10bn, with consensus near £3.4bn. The share of extended maturities in issuance is being cut from 9% to below 7%, while bill issuance is expected to double from £5bn to £10bn. Moving towards the front end lowers today's coupon bill but raises rollover frequency and interest-rate risk.

The revenue side is thin. Lifting the bank surcharge from 3% to 8% raises about £2bn, and freezing fuel duty costs £2.5-4.5bn a year. More than £4bn of the increase in defence spending looks unfunded, while income tax and VAT rises are off the table. The uncollected tax gap is cited at roughly £60bn. Public sector net borrowing has run about £6bn above the OBR profile since the start of the fiscal year, and the Bank of England is expected to begin tightening in November.