28 October 2026
If you are covering the financial market reaction to the Chancellor's Budget speech, please find below a comment from Kit Rees, investment strategist at Quilter:
"UK Chancellor John Healey has delivered his inaugural budget and, judging by the tempered reaction in sterling and gilts, his statement has done its job to placate markets looking for evidence of fiscal credibility. Indeed, Healey made fiscal discipline the primary feature of his speech, stating that this will underpin all the decisions he takes as Chancellor, in a bid to calm markets ahead of potential options for higher spending down the line.
“Still, despite this resoluteness from the Treasury, the UK faces a tricky backdrop. The Iran war and ensuing rise in oil prices have stoked inflationary pressures, with rising bets that the Bank of England will raise interest rates pushing gilt yields higher.
"That means the UK is spending more on servicing its government debt, eating into the chancellor’s fiscal buffer, while borrowing is predicted to be higher than was expected at the Spring Statement. Healey’s headroom has dropped to £15 billion from £24 billion, according to the OBR, giving the chancellor less room to manoeuvre in the event of another shock. He wants to rebuild this buffer going forward, but with events in the Middle East continuing to push energy prices higher and gilt yields remaining highly elevated compared to more recent times, this will be difficult to do unless something materially changes for the better.
"While the chancellor’s cost-of-living measures such as action on domestic energy costs and cuts to business rates will be welcomed by households and businesses, ultimately the outlook for the UK is uncertain. The country’s growth outlook for next year was downgraded by the fiscal watchdog, meaning that 2027 is shaping up to be a difficult year with the economy’s performance dependent on how the conflict in the Middle East impacts inflation.
“Indeed, the OBR doesn’t see inflation returning to target until 2028 now, while rates are due to climb to 4.5%. A double whammy at the same time as Andy Burnham is looking to announce some fairly fundamental changes to how the country operates. Today’s figures show the government has done well to eke out a decent level of growth this year relative to peers and the wider situation, but going forward it is going to be challenging to maintain that momentum."
