UK BORROWING FORECAST FOR 2026–27 RAISED TO 4.2% OF GDP FROM 3.6%

The Office for Budget Responsibility's latest forecast raises UK public sector borrowing for 2026–27 to 4.2% of GDP, up from the previous 3.6% estimate. The revision signals a materially wider fiscal deficit than markets had priced, which transmits through the gilt market via higher expected net issuance and a steeper supply pipeline that must be absorbed by domestic and overseas investors. Gilts, particularly the medium- to long-dated segment, are most exposed as heavier issuance tends to pressure yields higher and can widen term premia, while sterling may face pressure if the deficit revision reduces confidence in the UK's fiscal trajectory relative to peers. The pound and UK equities with heavy domestic revenue exposure are secondary channels, since a higher risk premium can tighten financial conditions for domestically focused firms. Traders should watch the next scheduled gilt auction calendar and any Debt Management Office guidance on issuance mix, alongside the upcoming Bank of England rate-setting communication, for signs of how the revised borrowing path is being translated into yield expectations.

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