UK markets take Autumn statement with equanimity

Sterling and gilts fell on Thursday as investors digested Jeremy Hunt’s plans to shake up the UK’s public finances, erasing part of a strong rally ahead of the Chancellor’s autumn statement.

The pound traded 1.0 percent lower against the dollar at $1.179 on the day after Hunt detailed a package of spending cuts and tax hikes he described as a “road to stability” that extended losses he had seen , before the Chancellor began his statement to Parliament. Sterling remains well above its late September all-time low of less than $1.04 and not far below a three-month high of more than $1.20 set earlier this week.

Gilts came under pressure after Britain’s Debt Management Office said Hunt’s actions would result in bond sales falling in fiscal 2022-23 to £170bn budgeted in September and less than the £185bn expected by investors. Although the DMO does not provide Gilt sales figures for the following year, the government’s funding needs for 2023-24 were more than the markets expected at more than £300bn.

The 10-year gilt yield traded at 3.22 percent, up about 0.09 percentage point on the day, and well below the high of more than 4.5 percent set in late September after Truss’ unfunded tax cuts had spooked the markets.

“The whole focus for the past few weeks has been on the switch from Truss to Hunt and [Prime Minister Rishi] Sunak, who said all the right things to calm the markets,” said Antoine Bouvet, rates strategist at ING. “But now people are looking at how much Gilt investors will have to swallow next year and it will be a record amount by far. That worries the market.”

The involvement of the OBR, which presented financial forecasts to guide Hunt’s plans — as opposed to Truss, who had brushed aside the budget watchdog — reassured investors, Nomura currency strategist Jordan Rochester said.

“But the budget will eventually result in UK growth expectations being lowered across the board,” Rochester added. UK markets take Autumn statement with equanimity

Adam Bradshaw

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