U.K. borrowing costs fell on Wednesday as markets broadly welcomed a flurry of economic news and fiscal announcements.
The yield on 2-year U.K. government bonds, known as gilts, was 3 basis points lower at 2:20 p.m. The 10-year gilt yield was just over 2 basis points lower.
Wednesday kicked off with a U.K. inflation print which showed price rises unexpectedly cooled to 2.8% in February, fueling hopes for a more decisive path of rate cuts from the Bank of England this year.
In the early afternoon, U.K. Finance Minister Rachel Reeves delivered her spring budget update, confirmed expectations for billions of pounds worth of spending cuts, targeting welfare and overseas aid, along with measures to crackdown on tax evasion. The government meanwhile reiterated its commitment to increase defense spending to 2.5% of GDP and reform planning rules to boost growth, while sticking to its “fiscal rules.”
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Following Reeves’ speech, the U.K.’s Debt Management Office announced it planned to issue £299.2 billion ($385.5 billion) in gilts for the 2025-2026 year, slightly higher than during the previous year, but just below the £304 billion estimated in a survey of financial institutions by Reuters.
“The market reaction shows the government managed to beforehand properly calibrate expectations… they’re making a point to financial markets that they won’t blithely spend and hope investors will finance it,” George Lagarias, chief economist at Forvis Mazars, told CNBC.
The size of the bond package is closely watched as an indicator of the level of supply in the market for the coming year. It is still among the biggest issuances on record, but here too Lagarias said the reaction would be favorable, given expectations.
“Gilt yields have been rising over the last weeks, but [the government] paid the price beforehand to avoid being rattled by unexpected volatility. The former you can deal with, the latter can bring down your government,” Lagarias said.
The U.K.’s FTSE 100 was 0.1% higher and the FTSE 250 gained 0.4%, bucking the regional trend which saw Germany’s DAX and France’s CAC 40 down by 0.86% and 0.69%, respectively.
The pan-European Stoxx 600 stock market index was 0.7% lower.
Asia-Pacific markets traded higher, tracking Wall Street gains on Tuesday on expectations that U.S. President Donald Trump’s tariffs could be softer than expected earlier.
U.S. markets closed slightly higher Tuesday despite the release of consumer confidence data showing that U.S. consumers’ near-term outlook on income, business and job prospects dropped to the lowest reading in 12 years.
