Tonight:
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Sterling slumped along with gilts tonight after the Treasury said it will issue a whopping £240 billion of Government bonds this year.
The pound was down 0.85 cents against the US dollar to $1.4535 and gilt futures added to losses from last night as the City reacted with shock to the Budget announcement.
Chancellor Alistair Darling's announcement about the amount of gilts to be issued far exceeded the £180 billion the markets were expecting, as the public finances crashed deeper into the red.
Stuart Cheek, head of the UK government division at BGC Partners in Canary Wharf, said it could be even higher given the optimistic growth forecasts published by the Treasury.
“I can see this heading north of £250 billion towards £300 billion,” he said.
Just last month the Debt Management Office estimated gilt sales would be £147.9 billion this year.
Gilt futures gyrated wildly during the Budget speech as the markets first welcomed borrowing figures broadly in line with expectations but then spotted the gilt issuance number.
It sent June gilt futures down to a low of 121.05 from 122.52 following a fall from 123.10 last night.
Don Smith, chief economist at Icap, said: “This really surprised the market. Gilts rallied during the Budget but when the number became known they moved quickly down. There are concerns about the level of gilt sales not just for this year but for the next two to three years.”
As well as the £240 billion of gilts, the DMO said it planned to issue £21.6 billion of shorter-dated Treasury bills. This compares with average sales of around £50 billion to £55 billion in recent years. “It's massively worse than expected,” said Shahid Ikram, head of sovereign products at Aviva Investors.
