11:50 GMT31 October 2020
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    Life After Brexit: What's Next After UK Leaves EU (52)

    On Sunday UK Finance Minister Rishi Sunak was weighing the merits of higher borrowing to shore up the economy, help businesses and tackle the coronavirus crisis, as markets wait await the the budget, which is set to be unveiled on Wednesday, 11 March.

    Britain’s bond issuance is set to surge to new highs on the eve of a significant increase in spending anticipated to be revealed in the country’s post-Brexit budget, which is scheduled to be delivered on 11 March, Bloomberg reports, citing a median forecast reflecting the opinions of 13 bond dealers.

    According to the broad-ranging scope of estimates from primary dealers of UK government bonds, sales of gilts are forecast to rise to 166 billion pounds ($218 billion) in the 2020-2021 financial year, the highest level in nine years.

    Morgan Stanley was more conservative; it forecasts bond sales totalling 146.3 billion pounds, while Nomura International Plc suggests a likely increase to 185 billion pounds.

    According to Citigroup Inc., the potential spending outlined in the coming budget is unlikely to be a one-time boost and could just be the start of a much-higher borrowing spree over the course of the next few years.

    The bank, writes the outlet, has revised its estimate to 170.4 billion pounds due to 'underfunding' the previous year.

    Suggesting that even that estimate may be too conservative, Jamie Searle, a strategist at Citigroup, provided a note to clients:

    “A fiscal splurge, -- taking advantage of low debt servicing costs -- seems highly likely. It might be prudent to add in some fiscal contingencies now for the developing coronavirus outbreak.”

    An unprecedented bond rally witnessed yields on short-term UK benchmark bonds swing below zero for the first time, amidst concerns over the fallout from the spread of the coronavirus epidemic, with yields on gilts maturing out to the next half century falling to record lows.

    “Market momentum this powerful will not be reversed by even a very large supply shock… Negative yields are clearly a possibility, especially in the safest, shortest issues,” John Wraith, a UK rates strategist at UBS Group AG in London is cited by the outlet as suggesting.

    Some forecasts suggest the surging bond supply is still likely to be “mopped up” by investors seeking safe assets amidst an anticipation of central bank stimulus to mitigate the fallout of the virus impact.

    Bloomberg writes that the Bank of England is expected to align with the Federal Reserve in dramatically cutting interest rates at its next meeting on 26 March. While traders are currently anticipating around 40 basis points of rate cuts for March, Mizuho International Plc strategist Peter Chatwell believes the rates might be lowered on the same day as the budget is unveiled.

    Front of the Bank of England
    Bank of England
    “If a fiscal package is announced at the same time as a monetary easing package -- even if it’s only a rate cut for now -- then current low yields can probably be reinforced,” said Chatwell.

    The London-based head of European rates strategy at Mizuho added:

    “This is where the power of a coordinated effort would be very helpful for both the tax payer and the BOE.”

    UK Budget Post-Brexit

    Finance Minister Rishi Sunak will deliver the UK’s financial statement on 11 March, which is expected to include a major review of infrastructure spending in line with Boris Johnson’s pledges to “level up” Britain’s poorer regions.

    The newly-appointed Chancellor of the Exchequer hinted on Sunday he was preparing a package of measures to tackle the coronavirus crisis.

    Britain's Prime Minister Boris Johnson visits a laboratory at the Public Health England National Infection Service on 1 March 2020
    © AP Photo / Henry Nicholls
    Boris Johnson visiting a Public Health England laboratory in March 2020
    “We need to make sure that we respond at scale to whatever scenario comes our way -- I can commit that we will do that… I know that we will get through it,” Sunak said on the BBC’s Andrew Marr Show.

    Analysts expect Prime Minister Boris Johnson to press ahead with major spending on infrastructure despite the economic fallout from the coronavirus.

    Finance Minister Rishi Sunak, who earlier vowed the budget "will deliver" on recent government promises of "unleashing the country's potential", is scheduled to outline emergency funding measures sparked by the COVID-19 virus epidemic.

    In the UK, there were 319 confirmed cases of coronavirus as of 09:00 GMT on Monday, a rise of 46 since the same time on Sunday.

    Life After Brexit: What's Next After UK Leaves EU (52)


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