UK to issue most debt in almost a decade to fund higher spending, dealers predict: Reuters poll

By Andy Bruce

LONDON (Reuters) – Britain is likely to issue the highest amount of public debt in almost a decade over the coming financial year to help pay for a big increase in government spending, according to a Reuters poll of dealers before Wednesday’s budget.

The United Kingdom Debt Management Office (DMO) is likely to announce a gilt issuance remit for 2020/21 of about 166.6 billion pounds ($214 billion), up from its current 2019/20 remit of 136.8 billion pounds, according to the median forecast from the survey of 14 out of Britain’s 15 wholesale primary dealers — banks tasked by the government with creating a market for its bonds.

The last time Britain issued more gilts was in 2011/12.

New finance minister Rishi Sunak is due to deliver his first budget and an update on the outlook for Britain’s economy and government finances shortly before 1300 GMT on Wednesday, after which the DMO will publish its 2020/21 gilt issuance remit.

The government’s tax-and-spending plan was originally billed as a chance for Prime Minister Boris Johnson to channel investment to poorer regions where voters helped him to a resounding election victory in December.

But with Johnson and his government now focused on how to cope with an expected surge in coronavirus cases in Britain, Sunak now has new priorities.

The survey pointed to a hefty increase in the government’s budget deficit in the next fiscal year, likely rising to around 67 billion pounds — or 27 billion pounds more than the Office for Budget Responsibility had predicted for 2020/21 in forecasts published in December.

“The March 2020 Budget will bring a substantial increase in UK public sector borrowing – principally via an uplift in discretionary spending but also as a consequence of a cyclical deterioration in tax receipts,” NatWest Markets economist Ross Walker and fixed income strategist Theo Chapsalis said.

The poll showed the DMO is likely to issue slightly more medium-dated gilts and fewer index-linked bonds as a proportion of total issuance. The DMO has said it is seeking to reduce how much inflation-linked debt it issues to lower the government’s exposure to spikes in inflation.

The DMO also looks likely to increase net supply of Treasury bills by around 3.5 billion pounds, the poll showed.

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