UK chancellor Rachel Reeves is set to deliver her spring statement next week with the expected announcement of £305bn of gross gilt issuance for 2025-26 following shortly after.
The Debt Management Office (DMO) will publish the remit for 2025-26 gilt issuance once the chancellor finishes her statement to parliament around 1.30pm, which will be the first time that the DMO will have published an estimate for this fiscal year.
A gilt is a government liability denominated in sterling and listed on the London Stock Exchange (LSE). They have been issued by the DMO on behalf of HM Treasury since 1998.
It comes as there has been a record surge in gilt trading, or UK government bonds. According to Hargreaves Lansdown (HL.L), gilt trading on its platform in February was 63% higher than in January based on net buys.
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Values bought on the platform year-to-date are nearly 60% of the total value traded throughout 2024, and there has been a 32% increase in the number of our clients that hold gilts compared to 12 months ago.
Meanwhile, retail investor demand for gilts has been big enough to impact recent prices.
Gilt yields hovered around 4.5% throughout February. While this was lower than during the spike in yields in January, it was still high enough to encourage investors to keep buying.
Analysts at Nomura said: “A combination of higher interest rates and inflation, weaker growth and wider deficit outturns means that public finances are running up against the new fiscal Rachel Reeves has set herself a fiscal ‘trap’ ahead of spring forecast, think tank warns
They also called on Reeves to announce remedial measures during the spring statement, focused largely on spending cuts rather than tax increases.
“After all, not only did Labour’s manifesto promise no rises in income tax, VAT or employee national insurance contributions, but in her November CBI speech Ms Reeves ruled out higher taxes and borrowing more generally. There is little doubt that spending cuts will prove difficult.”
Nomura expects Treasury to meet its rules by announcing spending cuts that take effect in future years, rather than coming into force immediately, thereby retaining the flexibility to reverse the cuts should the economic and financial market outlook ultimately improve.
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“The decision on whether to announce spending cuts to take effect now versus later may have little effect on meeting the fiscal rules at the end of the forecast horizon, but will certainly affect next year’s gilt issuance.”
