Published by Global Banking & Finance Review®
Posted on March 26, 2025
4 min readLast updated: January 24, 2026
Add as preferred source on GoogleUK bond sale plans were lower than expected, boosting market confidence. Finance Minister Reeves cut spending to meet fiscal targets, with potential tax hikes looming.
By Yoruk Bahceli, Harry Robertson and Naomi Rovnick
LONDON (Reuters) -British bond investors cheered lower-than-expected UK borrowing plans on Wednesday, but warned the government was likely to need tax hikes later this year if economic growth remains weak.
Finance Minister Rachel Reeves cut the government's plans for spending increases to get back on track towards her fiscal targets, restoring the 9.9 billion-pound ($12.77 billion) headroom against her fiscal rules that had been wiped out by lower growth and higher borrowing costs.
Markets held on to near-term positives.
The UK's Debt Management Office said it would sell 299 billion pounds of gilts in the upcoming fiscal year, below the 304 billion pounds banks polled by Reuters had anticipated.
That followed lower-than-expected inflation data earlier in the day that had added to traders' bets on Bank of England rate cuts.
Britain's 30-year bond yield fell as much as 7 basis points (bps) and was last down 5 bps at around 5.32%.
The gilt market has been on edge since Reeves's tax-and-spend budget in October, with benchmark borrowing costs touching their highest since 2008 in January. The scars of a mini-budget crisis in 2022 that sparked a gilt rout have loomed.
Allianz Global Investors portfolio manager Ranjiv Mann said markets had been nervous that borrowing plans could have come in higher than expected.
"Coming just below 300 billion (pounds) certainly gives comfort to the market," said Mann, who continues to favour gilts in his portfolios.
Ten-year gilt yields fell as much as 6 bps but were last 2 bps lower at 4.735%, little changed from before Reeves' statement.
The gilt sale announcement was further sweetened by the lowest proportion of longer-dated gilt issuance on record at 13% of the total, relief to that part of the market under particular pressure from high funding needs.
Sterling weakened slightly from before Reeves' statement and was last down 0.35% at $1.2899. Britain's FTSE 100 stock index was last up 0.5%, while broader European stocks fell 0.4% .
TAX HIKES COMING
While investors welcomed Reeves restoring Britain's fiscal headroom and her commitment to self-imposed fiscal rules, a challenging growth backdrop meant she was likely to need to create more headroom again in the autumn budget, they warned.
Britain's budget watchdog, the Office for Budget Responsibility, halved its forecast for growth this year to 1% and warned U.S. President Donald Trump's threats to impose new reciprocal tariff rates next week could cut the size of Britain's economy by up to 1%.
"There is a risk that she (Reeves) will have to reinstate part of the headroom in the autumn and to the extent that she has delivered welfare and departmental spending cuts, that increases the likelihood that she will have to go down the road of increasing taxes," said Aviva Investors senior economist and strategist Vasileios Gkionakis.
While the OBR raised its growth forecast for the coming years, Invesco global market strategist Arnab Das said falling longer-dated yields suggested the market did not fully believe that assumption, adding he did not rule out tax hikes.
The OBR also estimated borrowing would be almost 50 billion pounds higher between now and the end of the decade than expected five months ago.
"Today the market is dealing with the immediate threat of increased (gilt issuance) now, which didn’t happen," said Artemis fund manager Liam O'Donnell, who closed a position favouring gilts over German bonds last week.
"But the situation for the Labour government hasn't changed in terms of the financing requirement for the UK being on an increasing path."
($1 = 0.7754 pounds)
(Reporting by Yoruk Bahceli, Harry Robertson, Naomi Rovnick and Lucy Raitano ; editing by Andrew Heavens, Ros Russell, Alun John, Dhara Ranasinghe and Sharon Singleton)
The article discusses the UK's bond sale plans and their impact on the market, as well as the fiscal update by Finance Minister Rachel Reeves.
Markets reacted positively to the lower-than-expected bond sale plans, boosting confidence among investors.
Potential tax hikes may be needed later in the year if economic growth remains weak, according to investors.
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