British Chancellor John Healey's first Budget left the government with £15 billion of room against its main fiscal rule in 2029-30, down from £23.6 billion in March, while adding support for households facing higher energy bills.

For investors in Asia who hold gilts or sterling, the test was the bond market, and it passed. The 10-year gilt yield slipped during the Oct. 28 speech, according to MoneyWeek's live coverage. That leaves the Bank of England's Nov. 5 rate decision as the next big event for U.K. assets, with RSM calling an increase almost guaranteed.

Healey, appointed chancellor in July, delivered the statement to the House of Commons as the first Budget under Prime Minister Andy Burnham, LBC reported. He used the phrase "breathing space" 13 times, the broadcaster counted.

What Healey's Budget Contains

The energy package is the centerpiece. Households in council tax bands A to D in England, up to 20 million homes, will receive a £100 payment at a cost of £2.6 billion, the Treasury said, with funding for similar support elsewhere in the U.K. The government will ask the energy regulator Ofgem to abolish gas standing charges, the temporary value-added tax cut on electricity bills will run until July 1, 2027, and a 5 pence cut in fuel duty was extended to July.

Thomas Pugh, U.K. economist at RSM, estimated the support measures would trim only about 0.1 percentage point from inflation next year.

To pay for the energy measures, the bank corporation tax surcharge rises to 6% from 3% for 15 months, ending on March 31, 2028, the Treasury said. Bank shares rose anyway: NatWest was up 4.2% and Lloyds up 4.1% after the Budget, MoneyWeek said. Separately, machine games duty on higher-stakes gaming machines rises to 25% from 20%, part of the funding for a package of business rates support. RSM counted 98 separate measures, the most in any Budget since 2010, and said the largest revenue raiser is an effort to close the tax gap, which it called hard to deliver.

The National Living Wage rises 3.9% to £13.21 an hour. The cash individual savings account limit stays at £20,000 a year, reversing a planned cut to £12,000, and £20.4 billion more goes to the National Wealth Fund and the British Business Bank, LBC reported. Healey also confirmed a target of NATO-defined defense spending of 3.5% of gross domestic product by 2035.

OBR Forecasts and the Gilt Market

The Office for Budget Responsibility forecasts growth of 1.2% this year and 1% next year before a pickup to 1.6% in 2028 and 1.8% in 2029, according to LBC. Borrowing is projected to fall to 3.4% of GDP next year from 4.2% this year, and to 1.8% by 2030-31. Headroom is expected to rise to £22 billion in 2030-31, Healey told lawmakers.

The fiscal watchdog expects inflation to peak at 3.8% in the first quarter of 2027, Investment Week reported, to average 3.5% that year and to reach the 2% target only in 2028, MoneyWeek reported.

Pugh said the Budget "passed the financial markets' sniff test" but argued that most hard choices were pushed to next year's Budget and spending review. He noted the OBR's own estimate that headroom would need to be about £50 billion for a 70% chance of meeting the fiscal rule.

Bond traders took a calmer view of the numbers. The 10-year gilt yield stood around 5.36% at noon in London before the speech and was about 5.31% when Healey sat down, later drifting to about 5.33%, according to MoneyWeek's live coverage.

The Debt Management Office raised planned gross gilt sales for 2026-27 to £250.6 billion from £246.2 billion and again tilted issuance away from long-dated bonds toward shorter maturities, Newsquawk reported, a step that eases supply at the part of the curve that has been under the most pressure. Gilts rose after the remit was published before paring gains once the full OBR document came out.

Bank of England Up Next

The Budget does little to change the case for higher interest rates. U.K. consumer price inflation rose to 3.5% in September from 3.1% in August, the Office for National Statistics said. Bank Rate has been held at 3.75% since before the summer, and markets price about 100 basis points of tightening, Newsquawk said.

RSM said a rise next week looks almost guaranteed and expects at least one more in 2027, probably in February. Across the Channel, the European Central Bank took a different path in October and held its deposit rate at 2.5%.

The Bank of England's decision and its new Monetary Policy Report are due at noon in London on Thursday, Nov. 5, which is 8 p.m. in Hong Kong.