Britain’s finance minister John Healey is due to deliver his first budget on October 28 as higher borrowing costs and energy prices pressure public finances. The government’s fiscal headroom is estimated at £8.5 billion to £16 billion, down from £24 billion in March.
A global bond selloff briefly pushed the 30-year gilt yield above 6% in October and increased the government’s debt interest bill. Healey faces pressure to show how he will meet fiscal rules without raising the main taxes, while bond investors seek reassurance on fiscal discipline.
Sterling, near 16-month peaks against the euro, has shown little sign of treating the budget as a key risk event, though strategists cautioned against complacency. Shares of HSBC, NatWest, Lloyds and Barclays fell between 3% and 5% in October so far, with pre-budget concerns about a possible increase in the banks’ windfall tax partly blamed.
UK housebuilders rose in late September after plans for a first-time buyer support scheme were confirmed, but higher mortgage rates later erased those gains. Utilities gained almost 4% after Prime Minister Andy Burnham announced a publicly owned grid company and stepped up rhetoric on public ownership of underperforming water companies.
