Prime Minister Andy Burnham is reportedly navigating a challenging fiscal landscape, with ten-year gilt yields remaining at levels not seen since the aftermath of the Truss-Kwarteng mini-Budget. This comes despite his previous statement in September that the country needed to "get beyond this thing of being in hock to the bond market."
Public debt is already high, and fiscal room is becoming increasingly scarce. The National Institute of Economic and Social Research (NIESR) estimates that most of the government's £24 billion fiscal headroom has been eroded by higher energy prices and weaker growth. David Aikman, director of the NIESR, stated that commitments must be funded through taxation or savings, not through more borrowing, to maintain the current debt level.
The Debt Management Office intends to issue around 50% more gilts this year compared to 2022-2023. This elevated gilt issuance, coupled with the threat of inflation, could limit Burnham's options for funding his policy priorities, which include capping household bills and re-industrialisation.