UK budget could cut a fifth of a point from government bond yields

Tukker puts the risk premium at 20 basis points, or 0.20 percentage points, in 10-year gilt yields. In plain terms, that is the extra return investors demand to hold UK government debt rather than a lower-risk alternative; if the budget reassures them, some of that cushion can disappear, pushing yields down and prices up. He also flags a possible narrowing in the gilt-bund spread — the yield gap between UK gilts and bunds — during the budget, a move that would underscore the UK's relative fiscal position among G7 economies.

The budget itself is not expected to have much say on the Bank of England's tightening prospects, according to Tukker. The more sensitive channel is pay policy: any upside surprise in minimum-wage adjustments could ripple hawkishly through money markets, where investors price the future path of interest rates. Money markets are where short-term rate expectations are reflected, so a wage-driven inflation signal can move rate pricing even when the budget's headline fiscal numbers are reassuring.

Tukker points to forecasts that put the budget deficit inside 4% of GDP, with higher inflation dragging more income-tax payers into higher brackets. He places the UK among the few G7 economies heading in the right fiscal direction into 2027. That combination is why a narrower gilt-bund spread would be a signal about fiscal credibility, not just a routine budget-day move.

On the currency, Tukker said EUR/GBP is holding above 0.8350 and looks heavy — trader shorthand for a pair that is more likely to fall than rise. Barring surprise budget giveaways that hit gilts, he sees it staying heavy and potentially nudging down to 0.8315, and he sees no clear reason for it to bounce.