The United Kingdom pays one of the highest premiums in the developed world on its national debt, with the cost of servicing its existing debt rising more than a third since 2022. The bond market is increasingly scrutinizing all countries’ paths to fiscal sustainability as a condition for lending on reasonable terms. And the United Kingdom is no exception. A key condition underlying the importance of the recent budget is that the government continues to meet its fiscal rule of eliminating the current budget deficit by 2029–2030.
The “fiscal hole” that the U.K. chancellor needed to plug due to a weaker economy, weaker productivity and a higher cost of debt, was well below market expectations. Consequently, policy announcements were also at the less dramatic end of expectations, with a number of smaller tax rises funding increased spending and providing a larger fiscal buffer. This is the second successive year of tax rises, although they are primarily back loaded in th
