Gilt Yields Ease as the City Calls Healey's Budget a No-Harm Statement

The gilt market did not flinch. A day after John Healey's first Budget, the yield on the 10-year benchmark fell 3.7 basis points to 5.308 per cent. Two-year, five-year and 30-year yields were lower as well. For a Chancellor delivering his first set of tax and spending plans, with debt interest already 14 billion pounds higher this year, a quiet morning is the result the Treasury wanted.

The FTSE 100 was 42 points higher at 10,736 by mid-morning, a gain of 0.4 per cent. Shell was the strongest large stock, up 3.2 per cent, after quarterly profits doubled to 10.8 billion dollars. The company pointed to the margin on oil, lifted by the Iran war, the same shock Healey had stood up in the Commons to describe as a global storm. Sterling was steady to slightly softer, at 1.3310 dollars, down 0.1 per cent on the day. Over October the pound is still the best performing major currency against the dollar, up about 0.5 per cent.

Why investors called it a no-harm Budget

The measures that moved household bills did not move the debt arithmetic by enough to scare holders of gilts. A 100 pound energy payment for up to 20 million households in bands A to D, the end of gas standing charges during 2027, and an extension of the 5p fuel duty cut to July are real costs. They are offset, on the Treasury's account, by a bank surcharge rising from 3 per cent to 6 per cent between January 2027 and April 2028, higher duty on high-stakes gambling machines, and a rise to 24 per cent in the basic rate of tax on savings and property income from April 2027. The full political account is in our report of the speech and the morning-after row.

What the City had feared, in the letters that arrived before Wednesday, was a jump back towards an 8 per cent surcharge and a statement that looked loose. UK Finance had warned that restoring that higher rate could forgo output for a decade. Six per cent, time-limited, is a tax rise the market can price. Investors described the fiscal outlook as largely unchanged. That is why the move in yields was measured rather than violent.

Headroom, debt interest and the OBR

The Office for Budget Responsibility says Healey meets the main fiscal rule, a current budget in balance by 2029-30, with 15 billion pounds to spare. Rachel Reeves had built a 24 billion pound buffer by the spring. Borrowing is higher than expected in the near term. The Chancellor says the buffer will be rebuilt to 22 billion pounds by the end of the five-year forecast. Growth next year is now pencilled in at 1 per cent.

That headroom is the number the market trades. It is also the number the Resolution Foundation used on Thursday to argue that the parliament's second half looks harder than the first. Ruth Curtice said cost-of-living support had been spread too thinly, with the poorest half of households gaining 158 pounds on average and the richest half 144 pounds. Helen Miller at the Institute for Fiscal Studies said the Budget would not move the dial on growth. Neither verdict produced a sell-off. A think-tank can call a package scattergun and a bond desk can still call it contained. Both can be describing the same statement.

What it means before the Bank decides

Bank Rate is 3.75 per cent. The Monetary Policy Committee next meets on 5 November. Inflation, on the latest print before the Budget, was 3.5 per cent, and the September forecasts still had it uncomfortable into 2027 because of energy. Healey's household package takes some of the politics out of the January bills. It does not take the energy shock out of the inflation basket. A one-off payment and a shift in standing charges change who pays. They do not change the price of oil.

Shell's doubled profit is the private-sector version of the same fact. A 10.8 billion dollar quarter is good for the index and awkward for a Chancellor who has just told the country that global oil prices are the storm he cannot wish away. The shares rose because the margin is real. The gilt rally, such as it is, rose because the Budget did not add a second storm of the Treasury's own making.

If you want the measures household by household, start with the Budget report. If you want the warning the banks sent before the surcharge was set, read how the tax was drawn up. The 5 November decision is the next number that matters.