JazzG They haven't had a budget though have they? Liz Truss was booted out on the market reaction, the markets is where governments go to borrow money so their opinion does matter.
I thought it was self evident but it perhaps it bears mentioning that the goal of a budget is not to optimise for bond yield. The problem with Truss's budget is that it was more borrowing for lower taxes in an inflationary environment. That's not a different point of view, that's just throwing fuel on a fire and resulted in rates rise by 150 bps in a couple of weeks. But that wasn't still wasn't the main problem. The UK can borrow at 4.3% comfortably but the resulting whiplash meant that pension funds that were exposed to UK bonds in Sep 2022 were wiped out and that contagion spread through the asset classes. That's really not what happened last week. Is the UK borrowing at 20 bps premium this week as a result of the budget? Maybe. But it's currently in between US and Australian 10-yr bonds, so it's not exactly renegade.
Of course, the irony is that no one ever questioned budgets that were set by Osborne/Cameron that did - technically - pacify the market through austerity measures but oversaw a lost decade in the UK economy - shame the animal spirits didn't sense danger then, eh? It turns out raising borrowing in a decade of low rates would have made a world of difference instead of having to do so now. You guys can fret about a £22bn black hole and whether it's real or not but it's is an irrelevance compared to the opportunity cost of austerity. Not enough contempt is directed at those two for what they did.
My view is that this reframing that the budget has spooked markets is coming from the same mouth pieces that pushed the view that the budget would cause significant taxation on the working population. It didn't. So they've now changed track on something that is fairly technical but barbed because Labour can never outflank the Tories on austerity policies (both parties are more or less at par on taxation now). At any rate, the cost of borrowing is going down in the next 12 to 18 months so I'm confident that this little news cycle will be an irrelevance.
Ultimately any budget is essentially a wishlist. I personally didn't have any issues with what the government have wishlisted but the proof is in the execution and that takes talent more than capital.
