The KEY takeaway from UK Budget 2025

Prices.

That’s all that matters.

Price tells everything.

Amidst the desperate chatterings of which tax is good, which tax is bad from today’s budget, all you really need to do is look at two charts.

Chart 1 is 2 year gilts, or borrowing costs in the short term.

And chart 2 is the cost to borrow over 10 years…

The OBR has just released its assessment, and traders are reacting to that.

In short, they hate it, which is why yields are up.

Selling off gilts is effectively a show of distrust in the UK establishment, and Reeves & Co can talk as much as they like about this creating a foundation for the UK economy, but the bond market doesn’t believe it to be true.

You’re reading this if you’re non-premium because we think it’s important to note this single fact of markets — the simplest way to cut through the noise.

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Markets Talk, We Translate

Bear in mind that when the mini-Budget of 2022 was released, yields increased by about 27 basis points on the day…

The market initially thought the budget was relatively muted, but seeing further evidence of the extent of spending vs growth and now expectations of heightened inflation are slightly troubling them…

Where will we end up by the end of the week?

My bet is higher, towards the 4.5% mark on the 10 year…

What would be interesting is if the bond market pulls a 2022 and causes a significant enough U-turn, namely because of two very much unspoken about issues to do with the Bank of England…

What many do not report on here is that the UK taxpayer is being battered on an accounting entry.

We do not need to indemnify the Bank of England’s bond portfolio. They own the bonds. It is a shift between two different government departments, in effect.

So if we didn’t do this, the black hole that has been mentioned so often would vanish… by letting these bonds mature, as they have done already!

What is more astonishing is the second part of that Tweet!

We are financing bonds that pay 2% with reserves that cost 5%.

Which extremely smart person concocted this idea?

The fiscal problem is a Bank of England problem, yet many still believe the Bank of England is independent.

Because of this indemnity, it is not.

We should be marching in the street over this — but the problem is that I do not think this Labour government even understands this problem…