John Healey’s Budget had a record number of measures, but only a handful will move the needle. Here’s what the bond market made of it, the issues left untouched, and why we’re adding more bonds into our own portfolios.
John Healey talked a lot in his recent Budget. But ironically, didn’t actually say much. This isn’t unusual. In fact, it’s always the art of the Chancellor on Budget day to give a long list of numbers and a stream of policy initiatives, without ever properly addressing the elephants in the room. It’s an exercise in supplying the soundbites that the government and its supporters will roll out over subsequent days and weeks, just as the Leader of the Opposition’s response will always supply the witty ripostes to dismiss anything remotely positive.
How did the market’s respond to the Budget?
The job of the Chancellor last week was to “do no harm”, and this is exactly what bond investors wanted from the Budget. The immediate response from the gilt market – a collective broad shrug of the shoulders – would suggest that Chancellor Healey has successfully managed to do this. Although it’s clearly early days and there will be plenty of detailed facts and figures to trawl through in the accompanying ‘Treasury Book.’
The impact of previous Budgets is still felt
The “do no harm” is a simple request, but significantly important. Even today, the UK is still suffering the aftershocks of the Truss/Kwarteng mini-budget fiasco in 2022, that resulted embarrassingly in the Bank of England having to step in and provide support to a gilt market, and consequently having the equivalent of a cardiac arrest. The two subsequent Budgets delivered under Labour and ex-Chancellor Rachel Reeves were not as bad, but not exactly good either (in a pure fiscal sense) – increasing both the tax burden and projected borrowing figures, and ultimately adding c.£60 billion to national debt.
The latter has contributed to UK net debt recently passing through the £3 trillion level – a huge sum and rising fast: the first £1 trillion in 2010, the second ten years later in 2020, the third this summer just six years later. We have the dubious honour of paying the highest cost of borrowing amongst the G7, despite having the second lowest debt to GDP in the group behind Germany. According recently to the IMF, the UK is “the one country where action to reduce debt and deficit has been taken decisively.”
The big issues
There were two big issues that the recent Budget touched upon, but where unashamedly the can was again kicked down the road in terms of binding decisions. We know Healey’s position on defence; he resigned from his previous Cabinet role when he failed to get ex-Prime Minister Keir Starmer’s assurance that the UK would deliver on its pledge to grow defence spend to the promised 3% of GDP. He recommitted to the aim today in his recent Budget, and left the timeline still hanging. Secondly, having been involved in the decision to give the green light to production from the Jackdaw gas field in the central North Sea, nothing was said about the larger Rosebank oil field off Shetland.
A Budget costing £1billion
Overall, the 2026 Budget featured a record number of 98 separate lines or measures. But according to the BBC and IFS, nearly all of them are unusually small and only a handful of them set to move the dial, costing more than £1billion in total. It feels all smoke and mirrors to give the impression of doing a lot, whilst meeting the brief of keeping his and the government’s head below the parapet, safe from bond vigilante snipers.
What about the welfare bill?
The biggest issue in government finances that needs addressing, is the woolly mammoth in the room – the welfare bill. This was tactfully skirted in the Budget announcement but the subject of vigorous debate in subsequent postmortems. The total cost grew massively during Covid-19 and not fallen since – a record number unavailable to work due to long-term sickness. It’s the most politically emotive of subjects, up there with NHS spending, but one that absolutely needs tackling if government finances are ever to get back onto an even keel.
What does the future hold for markets following the Budget?
The days and weeks that follow will reveal whether Healey has met his brief of doing “no harm” in the eyes of the bond market. The fact that mistakes delivered by his predecessors are now so fresh in the memory, framing everything he is says and does, hopefully means mission accomplished in not making matters worse. This and just the healing effects of the passage of time, combining to bring our costs of borrowing back into the peer group pack.
The impact of the Budget on our own portfolios
Looking at the impact on our investment portfolios, our latest rebalancing includes a modest increase in fixed interest exposure. We see attractive value in government bonds, such as UK Gilts and US Treasurys. Unlike the near-zero return environment of five years ago, bonds now offer compelling yields to reward patient investors – with Gilts today yielding c.5.3%. While fixed income has recently been overshadowed by equity market euphoria surrounding AI, we are seeing early signs that the market recognises government bonds as a vital hedge, should AI growth fall short of heady expectations.
READ MORE: The role of bonds in multi-asset portfolios
Today’s bond markets offer more than just stability – they provide income, inflation protection, and a clearer path to predictable returns. Whether you’re preparing for retirement, managing long-term goals, or just seeking greater peace of mind, now could be a smart time to reassess how bonds fit into your portfolio. Want to find out more? Call 03300 564 446 for more information or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
