With the budget announcement from Chancellor Rachel Reeves looming, bond managers and investors seem relaxed about the potential risks, including higher borrowing. Reeves has promised new fiscal rules to unlock £50bn of new investment while maintaining fiscal credibility. Bond managers like Peder Beck-Friis from Pimco find UK government debt attractive and believe the budget will maintain a tight fiscal path.
UK bond yields have been rising, but the gap between UK and US government borrowing has been narrowing. Reuters polled 10 bond managers who are mostly sanguine about the risks of holding UK debt. They believe inflation is low and that the budget’s impact may not be as severe as feared.
In other news, UK shop prices are falling, potentially leading to a Bank of England rate cut in November. Retailers are urging Reeves to introduce a Retail Rates Corrector to ease the burden of taxes. Additionally, Reeves is expected to announce an increase in the national minimum wage of up to 6%, with younger workers receiving an even larger increase.
On the corporate front, energy giant BP has reported a 33% decrease in profits due to weaker oil prices. Despite the fall, the company plans to buy back $1.75bn in shares, highlighting their confidence in future growth. Overall, the financial markets appear optimistic ahead of the budget, with investors seemingly unfazed by potential risks.
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