The United Kingdom Budget Responsibility Office (OBR) said Wednesday that The long -term fiscal perspectives of the United Kingdom are still very challenging Amid uncertainty about the total impact of changes in well -being policies, according to Reuters.
Key points
“Now we expect real GDP growth of 1.0% this year.”
“It is expected that the economy of the United Kingdom grow 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
“An IPC of 3.2% in 2025 (October 2.6%) is estimated.”
“An IPC of 2.1% in 2026 (October 2.3%) is expected.”
“The tax/GDP ratio is expected to increase a historical maximum of 37.7% of GDP in 2027-28.”
“The high and volatile market expectations for the banking interest rate and the bond yields continue to mold the fiscal perspectives.”
“Productivity growth prospects are uncertain both in terms of their level and their growth rate.”
“If the recent weakness in the growth of trend productivity persists and the average growth is only 0.3%, the current budget would be in deficit in 1.4% of GDP in 2029-30.”
“The current margin is very small compared to the risks and uncertainty inherent to any fiscal forecast.”
“Public spending is expected to increase 45.% of GDP next year, before decreasing during the rest of the decade to 43.9% of GDP in 2029-30.”
“Taxes are expected as a percentage of GDP to increase 35.3% this year to a historical maximum of 37.7% in 2027-28 and remain at a high level during the rest of the forecast.”
Market reaction
The GBP/USD remains under a modest bearish pressure and was last losing 0.4% in the day to 1,2893. Meanwhile, the performance of the United Kingdom government bonds is kept low, losing around 2.5 basic points to 4.73%, the yield of the government bonds at 2 years rises and now remains stable in the day at 4,298%and the yield of the government bonds at 30 years reverses the previous fall, rising to its highest level from mid -January in 5,407%.
Bond yields of the United Kingdom State Faqs
The yields of the British state bonds measure the annual profitability that an investor of their bonds or gilts can expect. Like other bonds, Gilts pay interest to their holders at regular intervals, the “coupon”, followed by the total value of the bond at maturity. The coupon is fixed, but the performance varies, since it takes into account the changes in the price of the bonus. For example, a Gilt with a value of 100 pounds sterling could have a coupon of 5.0%. If the price of the Gilt fell to 98 pounds, the coupon would remain 5.0%, but the Gilt yield would increase to 5.102% to reflect the price drop.
Many factors influence the yields of the State’s bonds, but the main ones are interest rates, the strength of the British economy, bond market liquidity and the value of sterling pound. The increase in inflation will generally weaken the prices of the State’s bonds and lead to higher yields because the bonds are long -term investments susceptible to inflation, which erodes its value. The highest interest rates affect the yields of the existing state bonds because the new bonds of the State will have a higher and more attractive coupon. Liquidity can be a risk when there is a lack of buyers or vendors due to panic or preference for more risky assets.
Probably the most important factor that influences the level of state bond yields are interest rates, which is set by the Bank of England to guarantee the stability of prices. Higher interest rates will increase yields and reduce the price of bonds, because the new state bonuses will have a higher and more attractive coupon, which will reduce the demand for the oldest bonds, which will experience a corresponding price drop.
Inflation is a key factor that affects the yields of public debt titles, since it affects the value of the capital that the holder receives at the end of the term, as well as the relative value of the reimbursements. Greater inflation deteriorates the value of public debt titles over time, which is reflected in higher performance (lower price). The opposite occurs with lower inflation. In exceptional deflation cases, a public debt title can rise in price, which is represented by negative performance.
Foreign Gilt Forks are exposed to exchange risk, since Gilts are called sterling pounds. If the currency is strengthened, investors will obtain greater yield and vice versa if it weakens. In addition, gilt yields are highly correlated with sterling pound. This is because the yields are a reflection of interest rates and expectations of interest rates, a key factor of sterling pound. The highest interest rates increase the coupon of the newly issued Gilts, attracting more global investors. Since they are quoted in sterling pounds, this increases the demand for pounds.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
