Lauren Van Biljon, Senior Portfolio Manager on the Plus Fixed Income Strategy at Allspring Global Investments, has provided her thoughts ahead of tomorrow’s Spring Statement.
“The Chancellor and her team put effort into ensuring the run-up to the Spring Statement as uneventful as possible, downplaying the idea of substantial shifts in policy or large revisions to key estimates such as fiscal headroom. It was largely successful, although external events have eclipsed domestic considerations for the time being.
“Gilts had a strong run in the final week of February, buoyed by hopes of a sizable cut in issuance in the 2026/27 financial year. The spur for this cut in gilt sales comes from upside surprises to cash tax receipts. The Debt Management Office released its gilt remit alongside the Spring Statement, with consensus going into the announcement for a roughly 20% fall in year-on-year issuance. Lower supply could shore up sentiment on gilts through the second quarter of 2026, provided the domestic political landscape remains stable.
“The Spring Statement comes against a deteriorating external backdrop though, with the spreading conflict in the Middle East asking pointed questions about medium-term oil prices. Higher oil prices will sap economic growth and stoke inflation, which could delay interest rate cuts from the Bank of England. The UK yield curve is higher and flatter in response – in line with the move seen in peers – but whether this move reverses or extends depends chiefly on the duration of the conflict in the Middle East.”
