The bond market plays a crucial role in shaping government spending decisions – but how much power does it really have? With a Budget around the corner, are investors or Rachel Reeves setting the limits on fiscal policy?
In this episode, we unpack how the government borrows, why it’s so expensive right now, and what “fiscal credibility” really means. Joining Helen are Jack Meaning, Chief Economist at Barclays, and Ben Zaranko, IFS, to discuss the state of the bond market, the lessons from the Liz Truss era, and what investors will be watching for in the 2025 Budget.
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00:00 – Introduction
1:42 – What is a bond?
5:55 – What’s happened in the bond market recently?
9:04 – Changing role of DB pension schemes
11:55 – The Truss era
16:13 – Are we still paying the price today?
18:48 – Is the UK in hock to the bond market?
23:20 – What will investors be looking for in the Budget?
29:50 – The dynamics around the Budget
35:48 – Does political uncertainty affect the market?
38:15 – Conclusion
Thanks for listening, if you enjoyed this episode please like, subscribe and share it with your friends. You can see more of our Budget coverage here: https://ifs.org.uk/collections/autumn-budget-2025
00:00 – Introduction
1:42 – What is a bond?
5:55 – What's happened in the bond market recently?
9:04 – Changing role of DB pension schemes
11:55 – The Truss era
16:13 – Are we still paying the price today?
18:48 – Is the UK in hock to the bond market?
23:20 – What will investors be looking for in the Budget?
29:50 – The dynamics around the Budget
35:48 – Does political uncertainty affect the market?
38:15 – Conclusion
Everybody knows Truss, but how many knew about LDI’s, how many knew the BoE were selling bonds when they knew the gov was going to borrow. Part of the Supply /Demand. Who knows the BoE made a profit on buy and sell over the Truss period. Can we expect a Barclays spokesman be critical towards the BoE. The saviour or complicit
Cut spending, especially on those who should not be in our country and those who should be working. And then cut a bit more all unearned benefits (social housing/housing element of the universal credit, check very carefully any eligibility to disability to only include people who really have the need and make it only for actual expences used to help people into work). Huge crackdown on people who have lots of kids and work cash in hand or don't work. We don't want more poor kids
Why not just legislate to limit changes to mortgage rate to be no higher than 1 or 2% compared to the original rate?
"Because of the fantastic actions of the bank of england the turmoil was relatively short lived"?? Or the bank of england have since accepted that the majority of the gilt yield spite during ttuss' time was their fault?
It's the second.
The government doesn't need to "borrow" to fund public spending. The BoE can create this money at will. The full funding rule which means they need to sell bonds equivalent to the deficit is policy not legislation. What are your thoughts on that ifs?
!It is a fact of life that the government must go to the market and borrow to meet it's agenda".
Not according to MMT.
Fiat money, such as GBP is created by the government in the first place. The government can pay for anything that can be bought using GBP (Sterling), the Bank of England will create the money necessary to pay the bill.
Issuing bonds is a way of taking excess money out of circulation, providing a safe long term home for large amounts of Sterling, and giving a return on that money (interest/coupon) that is essential to things like our pensions. It also helps support the value of the currency internationally.
I'm not saying we can ignore the bond markets, but this "you need us to fund public spending" stuff is NeoLiberal propaganda that serves the financial markets and cripples the autonomy of governments. TINA (Tehre Is No Alternative) was nonsense when Thatcher was using it as an excuse for crippling austerity 40 years ago, and it's much more obviously nonsense now.
My question is "why can't the government just ask the Bank of England to print money to fund investment (not day-to-day spending)?"
That's what sets them apart from non-sovereign countries which don't have their own currency.
Start a new working benefits system. You pay into your own benefits account when you leave school and start work. If you are out of work you take money out your own benefits account. When it`s gone it`s gone. If you work hard all your life you get the money you saved up over your life in your benefits account when you retire in a lump sum. Then no one would complain about people being out of work because it their own money they are using. If you don`t want to work then you get nothing.
Inflation was touched on around the 15 minute mark, but the conversation didn't go into Modern Monetary theory ideas that governments like the UK are able to print money, as long as conscious of inflation consequences, rather than 'borrow from the bond markets' if they want to up spending. Can you explain why this was not discussed, and perhaps do as a follow up.