UK Gilts and the Bank of England — 2026-10-31

Top developments

Budget reassures bond market, yields hit five-week low

On October 28, Chancellor John Healey delivered his first Autumn Budget, characterized by "moderate" fiscal policies that avoided the radical spending fears that had previously pressured UK debt. Yields on UK government bonds (gilts) subsequently fell, with Bloomberg reporting that the 10-year yield reached its lowest level in five weeks by October 30. The budget included a £6 billion rise in bank tax and a £100 energy payment for millions, but analysts noted it broadly aligned with market expectations, causing gilts to outperform US Treasuries by five basis points.

DMO cancels multiple gilt auctions in revised remit

The Debt Management Office (DMO) published a revision to its Financing Remit for 2026-27 on October 28, announcing the cancellation of several scheduled gilt auctions. This includes a conventional auction previously scheduled for February 16, 2027, and two index-linked auctions scheduled for January 12 and February 23, 2027. This reduction in supply, combined with the budget's fiscal restraint, contributed to the easing of yields. Prior to the budget, on October 27, the DMO had already issued £4.5 billion of 4⅝% Treasury Gilts maturing in 2032.

Sterling rallies ahead of expected BoE rate hike

The British Pound (GBP) has tested six-week highs against the US Dollar, driven by a "soothing" reaction to the budget and anticipation of a rate hike by the Bank of England (BoE) next week. Traders are pricing in a tightening move, though the exact timing and magnitude remain a key focus for currency markets. The pound had previously slid as UK government bonds faced sell pressure, but the recent fiscal clarity has reversed some of that trend.

OBR warns on living standards despite budget

The Office for Budget Responsibility (OBR) published its updated forecasts on October 28, warning that living standards are set to rise by just 1% over the post-Covid decade. The OBR described the outlook as "pretty grim," citing Middle East conflicts and global economic headwinds as factors dragging on growth. While the budget did no immediate harm to gilts, analysts noted it "defers hard choices," leaving long-term fiscal challenges unresolved.

Local view

Investment Week highlights the diverging paths for UK and US yields, noting that while UK gilts have eased, the 30-year yield briefly topped 6% earlier in October, a level not seen since 1998. This volatility has made long-dated gilts a key focus for pension fund liability-driven investment (LDI) strategies.

The Guardian reports that the budget's fiscal discipline was a deliberate move to stabilize the gilt market after earlier turbulence. The newspaper notes that the "rehabilitation" of the UK bond market is progressing, with yields falling as investors gain confidence in the Labour government's fiscal prudence.

Context & numbers

• 10-Year Gilt Yield: Briefly reached 5.36% ahead of the budget on October 28, driven by oil price rebounds, before easing post-budget.
• 30-Year Gilt Yield: Topped 6% in early October, a 28-year high, before moderating following the BoE's September QT announcement and the recent budget.
• Bank Rate: The BoE maintained the Bank Rate at 3.75% in September 2026, with a 6-3 vote, as three members advocated for a hike to 4%.
• Gilt Issuance: The DMO's revised remit cancels multiple auctions, reducing supply in early 2027 to support market stability.

On the radar

• BoE Monetary Policy Committee (MPC) Decision: The next MPC meeting is scheduled for early November. Markets are widely expecting a rate hike, which could further support the Pound and influence short-term gilt yields.
• OBR Fiscal Rules: Investors will monitor whether the OBR's updated forecasts provide sufficient fiscal headroom for the government, as the "deferral of hard choices" could resurface as a risk in the medium term.
• Pension LDI Demand: The stabilization of long-end yields may reduce the immediate pressure on pension funds' liability-driven investments, though the 6% threshold remains a psychological barrier for the 30-year market.