The UK Parliament returned this week, though blink and you’ll miss it – it will rise shortly for conference recess.
Nevertheless, short though the sitting may be, it’s been full of goings-on. We won’t comment on the ministerial resignations and the ongoing reshuffle, but we will focus instead on another important announcement, which is the day of the UK Budget.
26 November is later than we expected
Our internal expectation was mid-November, so we were surprised to see the date chosen by the Chancellor.
It follows last year’s pattern, however, in that Rachel Reeves seems content to wait longer than she had to. Although the 2024 Budget was at the end of October, it was at the time criticised for being later than other post-election Budgets.
An immediate consequence is the knock-on effect this timing will have on devolved administrations. The Scottish Government is conducting its own Spending Review alongside the Draft Budget, both of which need to be presented soon after the Autumn fiscal event, which sets the block grants and its adjustments and therefore a large part of the funding envelope. Whatever happens – both December and January appear to be on the table – the Scottish Budget will be pushed later than ideal, making scrutiny harder and compressing stages before dissolution in advance of next May’s election.
Another consequence of picking a late Budget date is the opportunity for endless speculation to mount. This Summer was already consumed by endless articles in the press about reforms to property taxation and pressure for wealth taxes from Labour backbenchers. It seems implausible that these will let up now.
At the same time, the Treasury is bracing for a productivity downgrade by the OBR, which could leave it needing to raise taxes or cut spending at a time which would be far from ideal. Combine that with the U-turn on welfare spending – regardless of the merits or otherwise of the policy – which happened just before the Summer recess, and the path for the Chancellor is really narrowing.
Gilt yields are also on the rise
The news at the start of the week was the climb in the yield – that is, the implied interest rate – on UK Government bonds, particularly the 30-year gilt, which hit a 21st century record high of 5.7% on Tuesday. Although it has fallen back to 5.5%, this is still high by recent standards.
The movement was mostly on longer-dated debt, meaning that is has become relatively more expensive to issue and lock in interest rates for a longer period of time. But it’s also something that shouldn’t be that surprising – the flat yield curve we have had for a while was the historical anomaly, and you’d expect to need to compensate folk for parting with their money for 30 or 50 years rather than 5 or 10 by paying a higher interest rate.
The Treasury relies less on longer-dated bonds than it used to, with around third of its issuance tends to be longer than 15 years. This year has seen the Treasury move even more towards shorter-term issuance, though, with only 12% of conventional gilts planned to be over that 15-year threshold.
This movement at that end of things will make it even less attractive to issue long-term debt, which will incentivise shorter periods of refinancing. The obvious risk is that rates for those shorter instruments can go up when they need to be rolled over, exposing the UK to market movements.
But the lower share of the financing remit falling on longer-dated bonds already will mean that this seemingly sudden movement has less impact than it might immediately appear. The Autumn will be a challenge for Rachel Reeves, but it’s the speculation about measures and productivity downgrades that should keep her up at night – even if it would imprudent to not keep an eye on the financial markets.
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Don’t forget, The Fraser of Allander Institute celebrates 50 years of leading economic research in Scotland in 2025.
As part of our programme of events, we’re hosting our own conference at The University of Strathclyde’s Technology and Innovation Centre on the 18th and 19th of September 2025.
To find out all of the details, including the planned programme for the day and how to register, visit our conference page.
We look forward to celebrating with you!
Authors
João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.