The UK’s Gilt market in 2024 is worlds apart from where it stood in 2022. A key takeaway from UBS S&T shows that while both the 2022 and 2024 budgets sparked Gilt market reactions, the contexts couldn’t be more different.

Back in September 2022, inflation was already peaking at 10%, and the market swiftly priced in four more rate hikes from the Bank of England (BoE). Fast forward to October 2024, the reaction has been far more muted. This year, only one expected rate cut has been adjusted, while the market still anticipates a gradual 100 basis point drop over the rest of the down cycle.

In an analysis for the Financial Times, former UK fund manager and current Gilt commentator Toby Nangle offered sharp insights into this shift. His analysis didn’t just focus on rates—it also touched on the long-term evolution of the UK’s financial landscape since 2022, specifically the resilience of the Liability-Driven Investment (LDI) sector. Lessons learned during the 2022 turmoil have reinforced the sector, reducing vulnerabilities that had previously rippled through the market.

Nangle’s technique of using the Office for Budget Responsibility’s (OBR) 101-word executive summary highlights a fundamental issue: this year’s budget offers what he calls a “jam today” plan. The government is spending more now, partially financed through increased debt, to stimulate near-term growth. However, there’s a question mark over its longer-term impact. According to Nangle, the OBR projects just a 51% chance of meeting the government’s fiscal rule—far from reassuring.

In essence, this budget risks being a short-lived boost without substantial growth benefits for the future. The result? Higher yields, a drop in the pound, and pressure on rate-sensitive stocks. This dynamic is a sharp reminder that while short-term fixes can buoy confidence momentarily, real economic growth needs a more sustainable approach to financing and debt management.