Britain is being “slowly Truss’d”, warns the CEO of one of the world’s largest independent financial advisory organisations.
The stark warning from Nigel Green of deVere Group, in reference to the Liz Truss 2022 mini Budget,comes as rhe 10-year gilt yield is sitting at around 5.25%, its highest since 2008. The 30-year hit 5.89% earlier this month, a level unseen since 1998.
Both are above the peaks that forced emergency central bank action four years ago.
“The bond market is doing to the UK’s finances, in slow motion, what it did during the 222 mini-budget meltdown, and Chancellor John Healey walks into his first Budget on 28 October with a far weaker hand than the official forecasts suggest,” says Nigel Green.
“Everyone remembers the Truss moment because it happened in a week. This one’s happening in slow motion, and the damage could end up bigger.
“Borrowing costs are already higher than when the bond market went mad in 2022. There’s just no single day, no single decision, to point at.”
The squeeze is landing squarely on the Chancellor’s room for manoeuvre.
Rising yields have cut estimated fiscal headroom from around £26bn to £13.8bn, with no new spending announced and no tax cut delivered.
Every uptick adds to debt interest costs, shrinking the buffer before Healey has even picked up his pen.
“The Chancellor’s already lost almost half his headroom and he hasn’t stood up at the despatch box yet for the Budget,” says Nigel Green.
“The market’s writing the first draft of this Budget. Every basis point makes the arithmetic harder, and every tax rise or spending restraint gets judged against a bond market that’s already moved.”
Truss could be undone with a U-turn and a change of Chancellor. A gradual repricing offers no such exit. The central bank has said it will stop selling very long-dated gilts under quantitative tightening, a sign that the far end of the curve is seen as a pressure point.
It’s the same corner of the market that buckled in 2022, when pension funds became forced sellers.
The traditional buyers of long gilts are shrinking in number, while the Government’s borrowing needs remain large.
“In 2022 the fix was a U-turn and a new face at the Treasury. There’s no equivalent here,” says the deVere CEO.
“You can’t reverse a trend. The old reliable buyers of long-dated debt are fading, the supply keeps coming, and global bond markets are already jittery. It’s a combustible mix.”
Global forces are pushing yields up too, including inflation worries, higher oil prices and tighter policy in Japan and the US. Yet the UK, with Bank Rate at 3.75%, a thinning fiscal buffer and a Budget looming, is exposed when sentiment turns.
Bank Rate is well above where it stood in 2022, yet long-dated borrowing costs are still climbing, which shows how much risk the market is now pricing into UK debt.
“The pain won’t stay in Whitehall. Higher gilt yields feed into mortgage pricing, corporate borrowing costs and pension valuations, spreading the strain across households and businesses.
“Global bond markets are setting the tone, but the UK’s got its own vulnerabilities and 28 October is where they get tested,” says Nigel Green.
“If the Budget doesn’t convince bond investors the numbers add up, the drip becomes a flood. Doubt is all it takes for gilts to misbehave, and bond vigilantes to come roaring back.”
The Truss episode showed how quickly confidence unravels when investors question the fiscal maths. Healey’s challenge is to persuade markets before they finish persuading themselves.
Key questions hang over the Budget. How much consolidation will it deliver, and how credible will it look? Will the fiscal rules survive contact with a bond market demanding a higher price for UK debt? And can the Chancellor rebuild headroom without choking growth?
“The bond market will judge whether there’s credibility and the sums work at the Budget, and right now it’s casting a very sceptical eye over them,” concludes Nigel Green.
