“No harm” budget keeps Gilts out of the firing line

Today’s UK budget announcement has proven the non-event that newly-minted Chancellor Healey had signalled in advance. While his first budget is hardly inspiring, it contrasts favourably with the initial efforts of some of his recent predecessors. By sticking to a gradual fiscal tightening path, and to the expectations set over the past couple of months for a muddle-through budget, Healey has probably done enough to keep the Gilt market on side for now. We think that Gilt yields will fall over the coming year as the UK’s fiscal risk premium remains contained and the Bank of England policy takes a less hawkish path than money markets discount.