The UK’s October budget lifted the forecast cyclically adjusted primary surplus for 2027/28 to 0.5% of GDP and raised planned gilt sales to £250.6 billion, combining a stronger primary balance outlook with more government bond supply.
The Office for Budget Responsibility (OBR) lists the cyclically adjusted primary deficit at 0.3% of gross domestic product in 2026/27 and -0.5% in 2027/28. The negative figure indicates a surplus. In March, the OBR had forecast a 0.3% surplus for 2027/28.
The projected balance shifts 0.8 percentage points between the two fiscal years, compared with a 0.6-percentage-point shift in March’s outlook. The measure records the government’s balance before debt-interest costs and adjusts for the economic cycle. Before the budget, DBS said weaker growth resulting from the fiscal plan or borrowing estimates that disappoint investors could prompt investors to cash in recent sterling gains, a risk EconoTimes covered in its pre-budget report on sterling and fiscal risks.
The Debt Management Office (DMO) set gross gilt sales for 2026/27 at £250.6 billion, £4.4 billion above its April plan. Its net financing requirement rose by £7.4 billion to £258.6 billion, with Treasury bills providing a planned net contribution of £8 billion.
FXStreet reported that Elias Haddad of Brown Brothers Harriman viewed the budget as neutral for the pound and gilts. Haddad said the added restraint was unlikely to materially change market pricing of nearly 125 basis points in Bank of England rate increases over the next 12 months.
Reuters reported that sterling was flat at $1.3325 on Oct. 29 and that money markets fully priced a Bank of England rate increase on Nov. 5, followed by another by February. Reuters also reported that gilt prices edged higher after the DMO’s Oct. 28 financing announcement, as yields on 20- and 30-year bonds fell to one-month lows.
The Bank of England’s next policy decision is scheduled for Thursday, Nov. 5. Bank Rate was 3.75% after the Bank’s latest decision.
