英国利率策略：如果你发现自己掉进了坑里，就别再挖了

"If you find yourself in a hole, stopdigging" As part of our partnership with the Institute for Fiscal Studies,we outline the key challenges facing the gilt market from theBudget. We look at the UK’s fiscal fundamentals and why giltyields remain higher than those seen in other markets. Moyeen Islam(i)+44 (0) 20 7773 4675moyeen.islam@barclays.comBarclays, UK Key points •The UK is not a fiscal outlier among advanced economies when measured by traditionaldebt and deficit metrics.Projections from the International Monetary Fund show that thestock of UK government debt as a share of GDP and the UK’s fiscal balance are relativelyfavourable compared to peers, with projections indicating that the UK will undertake a largerfiscal consolidation (2.2% of GDP) between 2025 and 2030 than the average across advancedeconomies (0.3%). The UK is also expected to see a smaller rise in gross government debt(2.2% of GDP) than most advanced economies (3.2% on average). •Gilt yields have risen sharply, with 30-year yields rising from 4.5% a year ago to reach5.7% recently, their highest levels since 1998.Yields on 10-year gilts rose sharply from 1.0%to 3.7% over 2022, and are now close to 4.7%. This increase in the cost of borrowing is animportant contributor to thedifficultoutlook for the public finances. •An increase in yields on government bonds has been seen across advanced economies,partly as a result of a higher expected path for central bank policy rates. That yields on longer-maturity gilts are higher than in other countries partly reflects a consensus that the neutralpolicy rate is higher in the UK than in the US or Euro Area. An even more significant factor inthe global increase has been rising term premium, reflecting global trends such as thenormalisation of interest rates, higher inflation and rising sovereign bond supply. •The gilt market faces unique challenges.There has been a step change in the supply of giltsthat the private sector is being asked to absorb, with net supply now averaging 4% of GDP. Asa result of the Bank of England’s balance sheet reduction, private sector holdings are set torise even more quickly, by 6% of GDP on average over the next four fiscal years, comparedwith an average of 2.5% in the two decades up to 2019. This structural increase in supply isforecast to persist, placing ongoing pressure on yields and challenging the market’sabsorption capacity. •The government no longer enjoys ‘borrower’s privilege’ and instead faces the challengeof recalibrating supply to match a more elastic and less predictable demand base.Forover two decades, regulatory and demographic factors had created strong demand for long-dated government assets and compressed the 30-year term premium, reducing yields. But inthe post-quantitative-easing and post-defined-benefit-pension world, demand for long-datedgilts has waned. While domestic financial institutions, especially banks, are buying more, thisis primarily sub-15-year gilts. Thisshiftin demand has led the UK Debt ManagementOffice(DMO) to rotate issuance toward shorter maturities. We forecast that the weighted averagematurity of primary gilt supply – which was more than 20 years in 2016–17 – will dip below 10years in 2025–26. This reduction is a trend that is likely to continue given the elevated levelsof long yields and the DMO’s focus on value for money in terms of the cost of supply. •The identity of the marginal buyer is less important than the need for credible fiscal andmonetary policy to reassure a more discretionary investor base.The credibility of thegovernment’s fiscal consolidation plan is paramount to delivering bond market stability.Changing the fiscal rules or tinkering with the existing fiscal architecture would likely be seenas self-serving and could generate an adverse market reaction. In the extreme, such changesrun the risk of catalysing a gilt crisis. •The bond market will judge the upcoming Budget by whether its consolidation measuresare credible and deliverable, not just by the headline savings but in their composition.This is a political choice, but the market perspective is that both revenue-raising andspending-reduction measures will have to play their role. In particular, market participantshave come around to viewing spending reform as a critical signal of intent. A credible attemptto reduce spending would demonstrate that the government has the political will and abilityto deliver on its fiscal objectives. The signal this would send could be equally, if not more,important than the amounts any reforms actually saved. Welfare spending reform, inparticular, has become a bellwether for the government’s willingness to tackle politicallydifficultissues. Without reductioins in spending, to deliver the sums required solely via taxincreases could require breaking manifesto promises – not something done lightly. Shouldthe Chancellor raise the basic rate of income tax, it would be the first rise in over 50 years andwould demonstrate a wi