UK government bonds were volatile on Wednesday after the Office for Budget Responsibility (OBR) published its Budget assessment early in error.
Ten-year gilt yields tumbled to 4.419% from 4.500% in the minutes after the leak, which revealed that the government expects to be running a higher future surplus that previously thought.
But yields then climbed back to 4.562% as investors weighed up forecasts that UK economic growth will be weaker than expected in the years ahead. The 10-year gilt is currently yielding 4.473%, according to MarketWatch.
The OBR forecasts revealed that chancellor Rachel Reeves could increase fiscal headroom to £21.7bn in 2029-30. This is more than double the £9.9bn surplus projected in March.
Filippo Alloati, head of financials – credit at Federated Hermes, said: “The chancellor delivered a bigger-than-expected fiscal buffer, coming in at £22bn versus the £15bn markets anticipated. But this will be dependent on heroic growth assumptions, which markets will scrutinise closely.”
Tax rises will generate £26.1bn in additional revenue by 2029-30, including an extension of personal tax threshold freezes through 2030-31. The tax burden will reach a record 38% of GDP in 2030-31, the highest level in UK history.
Near-term deficit figures deteriorated compared with March forecasts. The 2025-26 deficit stands at £52.4bn, up from £36.1bn projected in the spring statement.
The 2026-27 deficit will reach £28.8bn versus the £13.4bn forecast in March. The path to surplus proved steeper than earlier projections suggested.
The surplus of £21.7bn in 2029-30 is now expected to be followed by a surplus of £24.6bn in 2030-31.
However, growth forecasts presented a mixed picture that unsettled investors, despite the OBR upgrading 2025 GDP growth from 1% to 1.5%.
The watchdog downgraded growth projections for 2026 through 2030. GDP will expand 1.4% in 2026, down from the 1.9% March forecast.
Growth will average 1.5% from 2027 through 2030. These figures fall below the March projections of 1.8%, 1.7% and 1.8% for 2027, 2028 and 2029 respectively.
Real GDP will grow 1.5% on average over the forecast period. This is 0.3 percentage points slower than projected in March.
Vivek Paul, UK chief investment strategist at BlackRock Investment Institute, said: “The government wants to demonstrate to markets that it takes fiscal credibility seriously and that the reason it didn’t make politically difficult decisions – like raising income tax and cutting spending – today was because it wasn’t needed, not because political backlash prevented it.
“Gilt yields fell initially but have since retraced some of that fall as the extra headroom appears to come from consolidation that has been pushed further out in time. Already low future growth expectations could be revised lower still – but the government will hope an expansion of fiscal headroom provides a greater buffer against global and domestic pressures.”
For a full breakdown on everything else you need to know about the Budget, click here.