The Bank of England has maintained the policy rate at 4.50%, amidst a challenging fiscal environment. Borrowing in the first eleven months of the 2024-25 financial year reached £132.2 billion, exceeding last year’s figures by £14.7 billion, marking the third highest borrowing since 1993.
Chancellor Rachel Reeves is anticipated to favour public spending cuts over tax increases in her upcoming Spring Budget Statement. Forecasts predict gilt issuance for 2024/2025 will rise to approximately £310 billion.
Uk Rate Expectations Shift
An 8-1 vote split within the Bank of England has adjusted UK rate expectations upward, despite prior indications of a cautious approach to rate cuts. The swaps market now reflects a pricing-in of 50 basis points easing while nearly eliminating the chances of an additional cut.
Keeping rates steady at 4.50% suggests policymakers are maintaining a careful stance as fiscal pressures mount. With borrowing reaching £132.2 billion in just eleven months, this year’s deficit continues to widen, surpassing last year’s level by £14.7 billion. Historical context offers perspective—this is the third-highest borrowing level seen since 1993, underscoring the burden on public finances.
Reeves is widely expected to lean towards spending reductions rather than tax hikes in her Spring Budget Statement. That would shape expectations for economic growth, as lower government expenditure typically dampens demand. Meanwhile, the forecast that gilt issuance could hit £310 billion for 2024/2025 means higher supply, which, depending on investor appetite, could affect bond pricing and yields.
Market Reaction And Policy Outlook
The 8-1 vote within the Bank of England is particularly telling. Only one policymaker pushed for a rate cut, reinforcing a shift in sentiment. Previously, there were cautious signals suggesting easing might come sooner, but that now seems less likely. The swaps market has adjusted accordingly, reflecting expectations of just 50 basis points in cuts. Traders had previously factored in deeper easing, but those bets have been pared back sharply.
What happens next is clearer with these adjustments. Higher borrowing, restrained fiscal policy, and a central bank holding its ground create a backdrop that market participants must consider closely. Bond issuance forecasts, rate cut expectations, and policy signals from Threadneedle Street all contribute to the picture that will inform pricing and strategy in the weeks ahead.
