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A decrease in borrowing costs has given the Chancellor in the UK Rachel Reeves greater maneuvering space while trying to maintain its narrow fiscal rules, but public finances remain exposed to the country’s deteriorating economic view, warn analysts.
UK government bonds have erased most of their losses since the October Reeves budget, bringing the costs of long -term borrowing close to the level they held before its tax and spending plans accelerated a market sale gilded.
Ten-year-old gilding yields, which move in the opposite price, fell as low as 4.44 percent on Friday, below the 16-year high level of the last month of 4.93 percent and near the pre-budget level of 4.32 percent.
But Grim foreshadows this week by the Bank of England, which halved its 2025 growth rating, suggests that the government will fight to reduce borrowing in the coming years.
She “just goes to show how fast humor music changes,” said Nick Hayes, head of fixed income in AXA investment managers. “Not long ago, the gilts were in a” loop doom “.. And yields were going to 5 percent.”
Revival in Gilts is due to a combination of a global gathering of connections and the prospect of lowering interest rates from BOE, which announced a decrease in Thursday’s trimester, among signs of economic growth and facilitation of the Flag and facilitating facilitation of economic growth and relief inflation.
Market measure has provided relief to Reeves while it tries to maintain its self-imposed fiscal rule that daily expenses are covered by tax bills.
The budget responsibility office, the UK fiscal supervisor, said in October that the Chancellor had 9,9bn £ in the head room – the reserve margin it has against the fulfillment of its fiscal rule.
The subsequent growth of gilded yields had led economists to warn that such a thin maneuvering room-the lower third since 2010-had been deleted from the highest borrowing costs.
Andrew Goodwin at Oxford Economyics estimates that due to the Gilt Rally Reeves market now there are about £ 5 billion in the fiscal head room, half of October level, but better than the negative position in the January sale depth.
But he warned that the additional scope Reeves has won “Pales compared to what may happen if (OBR) changes its growth or earnings.”
He added: “It was a great risk of leaving so few rooms to start, and that danger is potentially crystallized.”
Many fund managers have a similar analysis and argue further costs or tax raising cuts will be needed to strengthen the UK fiscal position.
Economists say that if the OBR sets out a similar low economic forecast for this week’s BOE estimates, it would add pressure on public finances due to lower tax revenue increases.
BOE now expects GDP to increase only 0.75 percent this year, before growing to 2026 and 2027, while unemployment can increase to 4.75 percent.
It has also become more pessimistic about the extent to which the UK economy can grow without promoting inflation.
In taking its annual shares of the economy’s supply side, the Central Bank said that the level of potential UK growth – often described as a “speed limit” for steady GDP growth – had slowed down Only 0.75 percent by the beginning of 2025, down from 1.5 percent a year earlier.
Boe said he expects potential growth to grow in the following years, leaving its forecast to 1.5 percent.
Some economists have predicted that the OBR may eventually be forced to reduce its prediction for possible growth given the constantly disappointing performance of UK productivity in recent years.
This would make a serious blow to public finances, as OBR forecasts are the basis of government budget plans.
A decrease in potential growth predictions would have “really large impacts on Rachel Reeves’ heads,” Rob Wood said in Pantheon macroeconomics.
The Chancellor will be, he will be “desperately hoping” OBR does not decide to make such a discount.
