LONDON, UK – MARCH 26, 2025: UK Finance Minister Rachel Reeves leaves 11 Downing Street ahead of the presentation of the Spring Statement in the House of Commons on March 26, 2025 in London, UK. (Photo credit: Wiktor Szymanowicz/Future Publishing via Getty Images)
Viktor Simanovich | Future Publishing | Getty Images
The UK government’s borrowing costs were thrown into flux on Wednesday after the country’s Office for Budget Responsibility unexpectedly released its economic and fiscal outlook ahead of the autumn budget.
Benchmark yield 10 pension Last time it fell by 2 basis points, but in the short term 5 pension Yields fell by 4 basis points. When the report was first released, 10-year Treasury yields fell by as much as 4 basis points, but have since reversed and risen by as much as 4 basis points.
uk 10 pension
The OBR is due to publish its forecasts after the Budget, with Chancellor of the Exchequer Rachel Reeves beginning her presentation in Parliament at 12:30pm London time (7:30am ET).
Beginning his speech, Mr Reeves said the early publication of the OBR’s outlook was “very disappointing and a serious mistake on their part”.
The OBR said in a statement that a link to the outlook was published on its website “too early this morning” and has since been removed.
“We apologize for this technical error and have launched an investigation into how this happened,” it said, adding that the error would be reported to the supervisory board and relevant government agencies.
In a report, the fiscal watchdog detailed the tax increases announced in the Budget, including a freeze on income tax thresholds, a tax on private pension contributions above £2,000 a year, a new mileage-based tax on electric cars and an annual tax on homes costing more than £2 million ($2.6 million).
The OBR also revealed that the Budget would increase taxes on dividends, property and savings income by 2 percentage points, which is expected to raise £2.1bn.
New spending policies, including the removal of the so-called two-child limit on welfare, are expected to increase public borrowing by £7bn next year and £11bn in 2029-30, the OBR predicts.
The OBR cut its growth outlook for the UK by 0.3 percentage points due to weaker underlying productivity growth, saying it now expects gross domestic product (GDP) to grow by an average of 1.5% over the next five years.
The British pound rose 0.2% after Reeves announced his budget. against both US dollars and EUR.
British pound vs. US dollar
Why are bond yields important?
In the lead-up to the budget, investors told CNBC that the bond market wants Reeves to cut public spending and raise taxes, a move that may be unpopular with voters.
Bond yields and prices move in opposite directions, so if investors are reluctant to lend to the government, bond prices will fall and yields will rise.
The British government currently has the highest borrowing costs of any G7 country, with the yield on 30-year government bonds well above the key 5% benchmark, spending much of this year at multi-decade highs.
A dramatic rise in gold yields (essentially the amount of interest governments pay on their debt) could also have far-reaching effects across the economy.
While bond yields reflect the cost of borrowing for governments that issue bonds, they can also affect mortgage rates, investment returns, the broader economy, and personal borrowing.
Back in 2022, Chancellor Liz Truss’s unfunding of wide-ranging tax cuts caused a plunge in bonds, had long-lasting economic effects, and led to her resignation after just 44 days in office.
