Healey faces his first budget with 10-year gilt yields at their highest since 2007

Most of this week's move started outside Britain. The Guardian attributed the recent swings in government bond markets to international factors ^[8], and the sell-off has intensified as oil prices soared with no resolution of the Middle East conflict in sight ^[5]. The US has already tried to push back. Treasury Secretary Scott Bessent announced a doubling of bond buybacks in August, when 30-year Treasury yields stood at about 5.235%; they have since risen above 5.7% ^[3]. The yield has climbed more than 0.46 percentage points with the policy in place ^[19].

Healey's room to absorb this was set in March. Rachel Reeves built a £24bn buffer against Labour's fiscal rules at her spring statement, and economists cited by the Guardian believe rising borrowing costs and a weaker growth outlook are likely to have wiped out around half of it, perhaps significantly more ^[9]. Half is about £12bn ^[20]. Each pound of headroom Healey restores through tax comes out of the same businesses and households whose own borrowing costs follow gilt yields up ^[14].

The strongest objection to a large rebuild comes from Andrew Wishart of Berenberg Bank. "Raising taxes to keep the surplus close to the size it was in the March forecast (ie to 'maintain the headroom') would do unnecessary damage to economic incentives," he said ^[11]. He argues that gilt yields are likely to come back down over the next year, with the Bank of England making fewer than the four rate rises investors currently expect ^[12]. If he is right, a tax rise sized to today's yields over-corrects for a temporary spike. The weakness is timing. His forecast plays out over a year, and the budget is on 28 October ^[8].

Kristalina Georgieva, managing director of the IMF, has urged governments to tighten their belts in response to rising yields ^[6]. "My message to the world's economic policymakers will be this: we cannot keep delaying necessary policy action - you have the tools, now have the wisdom to use them," she said ^[2]. Her case runs over a longer horizon. "Policymakers had a relatively easy ride over the last 17 years, as for all that time interest rates were stuck below GDP growth rates," she told Bloomberg Television, according to NBC News. "Higher interest rates now put an end to that." ^[4] She also expects government bond yields to stay under pressure from the AI boom ^[17]. Huw van Steenis of Apollo wrote that "Hyperscalers have raised $48 billion in bonds in European currencies this year, which is already more than triple the entire amount of 2025." ^[18]

For a company deciding this quarter, Wishart's one-year view and Georgieva's decade view point different ways. Investors are already pricing the cost to business: on Wednesday they sold stocks on the bet that rising yields would raise corporate borrowing costs and cut into profits, and Europe's Stoxx 600 fell 1% ^[16]. I think the tax rise is the firmer expectation for 28 October ^[10]. The reporting so far does not say which taxes Healey will use. A company that refinances now fixes its costs at today's yields. One that waits is betting, with Wishart, that they come back down over the next year ^[12].