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Gilt Rally on Softer Inflation Offers Reeves a Potential Windfall If the OBR Captures It

Whether the OBR’s 10‑day snapshot includes this week’s pricing will decide how much of the drop in borrowing costs appears in the November Budget.

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Rachel Reeves has depressed the economy - and us (Photo: Joe Giddens/Getty)
Rachel Reeves speaking at the regional investment summit in Birmingham on Tuesday
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Overview

  • UK CPI came in at 3.8% for September, below the 4% expected by markets and the Bank of England.
  • Benchmark gilt yields fell to 11‑month lows, with 10‑year yields near 4.38–4.4% and two‑year around 3.76–3.78%, reducing projected debt‑service costs.
  • Bloomberg Economics estimates the Treasury could save up to about £4.5bn if the OBR’s 10‑working‑day market window captures current pricing, though the watchdog has not disclosed the timing.
  • Reeves still faces a roughly £30–35bn fiscal gap as annual debt interest tops £100bn and inflation‑linked payments on index‑linked gilts are estimated around £28.5bn this year.
  • The UK’s heavy reliance on index‑linked debt, about a quarter of outstanding gilts versus roughly a tenth in the US and France, magnifies the fiscal impact of inflation surprises as analysts flag higher odds of a BoE rate cut this year.