UK bond sales expected to hit £300bn this year

Investment banks anticipate a jump in UK government debt sales this year to finance a rise in public investment.
On average, global investment banks expect the value of gilt sales this year to reach nearly £300 billion, the second-highest total on record. The figures were compiled by the Financial Times based on an analysis of seven investment banks’ estimates.
Rachel Reeves, the chancellor, confirmed this month that the government will change the definition of debt target in the fiscal rules at the budget on Wednesday, most likely moving to public sector net financial liabilities and departing from public sector net debt excluding the Bank of England.
The shift will increase the degree of headroom against the fiscal rules — getting debt as a share of GDP falling in five years — to around £50 billion. The chancellor is expected to use around £20 billion of this windfall to borrow and finance higher public investment spending.
Analysts on average said they expect the net financing requirement for the year to March 2025 to climb to £298 billion from £278 billion currently, a number only surpassed during the 2020/21 fiscal year when government spending rose rapidly to deal with the economic fallout of the Covid-19 pandemic.
Stripping out redemptions, or gilts being paid, the financing requirement could hit £158 billion, according to the investment banks. This would be the third highest amount of newly issued debt on record, beaten by the pandemic-induced borrowing increase and the global financial crisis in 2008.
Reeves is expected to launch £40 billion of fiscal tightening at the budget, most of which will come from tax increases, including rises to capital gains tax and employers’ national insurance contributions.
UK government borrowing costs have increased over the past week as news of the chancellor’s plans to raise borrowing reached the market. The yield on the benchmark 10-year UK government bond rose from 4.07 per cent last Monday to as high as 4.29 per cent this Monday, before edging lower to 4.26 per cent. The yield moves inversely to bond prices.
However, the yield on sovereign debt of other rich economies, such as the United States, also rose sharply over the same period.
Sterling gained ground on the US dollar on Monday, strengthening by 0.27 per cent to $1.298, and was broadly flat against the euro at €1.200. Currencies tend to be strengthened by higher government bond yields as they make fixed income assets denominated in that currency more attractive.