Ahead of the Budget next week, government bond investors suggest that the government could massively increase borrowing so long as the Chancellor is clear on her plans.
Rachel Reeves could borrow an extra £80 billion to fund spending on infrastructure and green energy, according to an assessment by Lloyds Banking Group PLC (LSE:LLOY) shared with the Sunday Times.
The document by Lloyds, which is among one of the major buyers of government bonds, found that there is demand to buy more gilts over the next five years “for productive infrastructure investment”.
Reeves has been meeting with banks and other major City institutions in recent weeks as she puts the final touches to the 30 October Budget, where one of the main aims is to continue spending while also plugging a £22 billion “black hole” in the public finances.
Treasury sources have indicated that Reeves is eying a tweak to fiscal rules to enable her to borrow more to help repair the NHS, invest in infrastructure and defence, plus other projects.
Lloyds said Reeves would need to be clear about her plans and go glow when it came to borrowing, adding to other supportive voices in the City, with Goldman Sachs and Amundi last week expressing a favourable stance towards UK government bonds.
Lloyds chief executive Charlie Nunn told The Sunday Times that any new fiscal framework would “need to be clearly explained and understood” and the Budget must “lay out clear and credible messages on disciplined in-year spending and the new deficit golden rule, alongside how new investment yields benefits”.