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London, UK – March 26, 2025: British Chancellor Casser Rachel Rivz leaves 11 Downing – Rate before announcement of a spring statement in the House of Commons in London, UK 26 March 2025 (the photo should read Wiktor Szymanowicz/Future Publishing via Getty Images)
Wiktor szymanowicz | Future Edition Gets the image
The UK government plans to increase government expenses and observers about the market warn that the proposals are at risk of sending shivers through the bond market, which further blows payments at $ 14 billion a year.
UK Finance Minister Rachel Rivz on Wednesday announced the government would be Enter the billions of pounds In defense, health care, infrastructure and other spheres of economy in the coming years. However, a day later official data showed the UK economy decreased by more than expected 0.3% In April.
Funding for public spending In the absence of growing economyIt leaves the government two options: to raise money through taxation or to take great debt.
One way he can borrow is to issue bonds known as Gilts in the UK to the public market. Buying Gilts, investors are essentially borrowing the money of the government, and the profitability of bonds that a refund that investor can expect will receive.
Gild yields and prices are moving in opposite directions – so the rise in prices is moving below, and vice versa. This year, gilded crops saw flying moves, and investors are sensitive to geopolitical and macroeconomic instability.
Costs for long -term Britain government borrowing In January, went up to several decadesand yield on 20- and 30-year-old gilding continues to firmly hover above 5%.
Official estimates show that the government is expected Spend more than 105 billion pounds ($ 142.9 billion) that pay interest According to its state debt in 2025, the financial year – by £ 9.4 billion than during the autumn budget last year – and £ 111 billion in 2026.
The government did not say on Wednesday how its recently open expenses would be financed and did not respond to CNBC’s request for a comment on where the money would come. However in her Autumn budget last yearReiva outlined plans for raising both taxes and borrowings. Following the budget Minister of Finance paragraph In order not to raise taxes again during the current term of work in the post, saying that the government “will not have to make a budget such as this.”
Andrew Gudwin, the UK chief economist of Oxford Economics, said repair to go for a target for protection for the member states up to 5% GDP and once a Turn on winter fuel payments for the elderly and Other possible welfare reforms taken into account in.
In addition, Gudwin said that in the UK on budgetary responsibility, it would probably make “unfavorable reviews” to its economic forecasts in July, which would reduce tax revenues and higher borrowings.
“If the recent financial market content movements, the debt service costs will be 2.5 billion pounds (3.4 billion) higher than at the time Spring statement“Gudwin warned in a note on Wednesday.
“Very fragile situation”
Mel Straid, who acts as a Chancellor of Shadows in the UK, said CNBC “Squawk Box Europe” on Thursday that the cost review raises questions about whether there will be a “huge amount of borrowing” in the financing of the government’s fiscal strategies.
“(Government) borrowings have consequences in terms of greater inflation in the UK … and therefore interest rates () higher,” he said. “It adds to the debt, the cost of service, which operates 100 billion (pounds) a year, is twice as much as we spend on defense.”
“I am afraid that the overall economy is in a very weak position to resist the expenses and borrowings proclaiming this government,” Stray added.
The Strike claimed that the shija “almost certainly” should again raise taxes in the next message paid in the fall.
“We are in a very delicate situation, especially if you have tariffs around the world,” he said.
Rufaro Chiriseri, head of fixed income for the British Islands on RBC Wealth Management, said CNBC that the borrowing expenses are threatened with “already a small budget”.
“This reduced supply can create a snow ball effect as investors can potentially nervous to contain debt in the UK, which can lead to further sale until fiscal stability is restored,” he said.
Ian Barns, Chief Netwealth Investment CEO, also said CNBC on Thursday that the UK was in “a state of fiscal fragility, so the maneuver’s place is limited.”
“The market knows that if the growth is disappointing, then this year the budget can provide higher taxes and increase borrowings to finance the cost plans,” Barnes said.
However, April Larus, the head of the Investment Investment Investment Department, claimed that there were ways to keep the loan load that will be stored under control.
The management management management in the UK, which issues gilding, has the opportunity to remake the issuance of Patters – maturity and type of gilding – to help the government get borrowing costs, she said.
“With an average profit of 1-10 years gilding on C4% and yield on a 15-year-old + gilded gilding by 5.2%, there is a sphere to make the cost of financing the more accessible,” she explained.
However, Larus noted that payments on the British government’s debt are estimated in the equivalent of about 3.5% of GDP in this financial year, and that the cost exceeding could worsen the severity.
“This increase is due not only to higher interest rates, which are gradually transferring to higher payments of the coupons, but also the increased level of government costs, making the financial load,” she said.
