Deutsche Bank\u2019s chief UK economist, Sanjay Raja, said that based on Tuesday\u2019s yields, Healey\u2019s headroom against the current budget rule would fall from \u00a326bn at Rachel Reeves\u2019s spring forecast to \u00a313.8bn before covering any additional spending plans.<\/p>\n
Almost all of the deterioration results from higher government interest costs. The OBR\u2019s March forecast<\/a> had gilt yields at 5.1% for this year. Gilt yields eased back a bit later on Tuesday \u2013 to 5.85% for the 30-year and 5.21% for the 10-year \u2013 but they are still well above the predicted level.<\/p>\n chart<\/a><\/p>\n Raja suggested Healey would be likely to try to maintain headroom of at least \u00a310bn to assuage market concerns about the government\u2019s commitment to balancing the books. \u201c\u00a310bn to me is the floor. In a perfect world you would want to keep 15,\u201d he said.<\/p>\n In addition to global forces, Raja said higher-than-expected growth in the UK in the first half of the year had also contributed to rising yields. \u201cThere are some good reasons,\u201d he said.<\/p>\n The current budget rule is the promise that the government will match day-to-day spending with receipts and only borrow for longer-term projects.<\/p>\n Tuesday\u2019s market moves underline the tricky global backdrop facing Andy Burnham\u2019s government as he returns to Westminster promising to help consumers<\/a> with the cost of living.<\/p>\n The OBR takes market expectations of future gilt yields during a two-week reference period in to account in its forecasts. It does not announce these dates in advance, but Raja suggested judging by the timing in previous years, the current tumultuous period may be included in its budget projections.<\/p>\n chart<\/a><\/p>\n The bond sell-off was driven primarily by international factors. Japanese 10-year yields hit their highest level since the 1990s over expectations that the Bank of Japan would have to raise interest rates to control inflation.<\/p>\n skip past newsletter promotion<\/a>Free newsletter | Every weekday<\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n after newsletter promotion<\/p>\n Investors also appeared to be responding partly to higher oil prices, which were up 1.7% at $92 after a fresh exchange of fire<\/a> between the US and Iran over the weekend. Higher energy costs drive up inflation, potentially forcing central banks to respond.<\/p>\n As well as fretting about future price rises, bond investors also appear to be concerned about runaway deficits in the US, where the Trump administration has cut taxes and is having to hand back much of the revenue<\/a> from swingeing trade tariffs.<\/p>\n The chief economist at the consultancy Capital Economics<\/a>, Neil Shearing, said: \u201cIt\u2019s been a perfect storm for the bond markets: we\u2019ve had these fiscal concerns that have pushed up the long end of the curve, and now that\u2019s being compounded by upward energy price pressure, pushing up interest rate expectations in the short term \u2013 and if you\u2019re sitting in the Treasury, none of that is good news.\u201d<\/p>\n Finance ministers and central bankers from the G20 major economies concluded their meeting in North Carolina<\/a> to discuss the state of the global economy on Tuesday.<\/p>\n The US and Japan took the rare step of intervening jointly<\/a> in global foreign exchange markets in August in an attempt to prop up the yen, but the Japanese currency subsequently resumed its slide.<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/09\/1788278531_35_500.jpg\")
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