UK Gilt Issuance to Rise £3.4 Billion This Fiscal Year as Fiscal Headroom Shrinks

The UK will need to borrow £3.4 billion ($4.5 billion) more than planned this fiscal year to cover higher debt costs and public spending, according to a Bloomberg survey of government bond dealers. The median of 10 estimates puts gilt issuance at £249.6 billion in the year through March, up from the £246.2 billion announced by the Debt Management Office in April. Yields on benchmark 10-year gilts have climbed to 5.4% from 4.23% since the outbreak of the war in Iran, pressuring a government facing calls to cushion households from rising energy bills and boost defense spending. Primary dealers expect fiscal headroom to fall roughly a third to £15.2 billion, with the government partially offsetting the decline through tax measures such as higher bank levies. The updated remit arrives with the government's first budget under Andy Burnham and Chancellor John Healey on Oct. 28. The DMO is expected to lean on short-dated instruments, issuing £11 billion in Treasury bills versus the £5 billion forecast in April, while long-dated supply is seen falling to 6.6% of sales.