Will Wainewright

Given I have been asked numerous times today what I would do to calm Gilt markets there are probably three things that provide the necessary space heading into an inevitably tricky Autumn Budget. Firstly, clear co-ordination between the Treasury and BoE on Gilt sales going forward. There is a widespread perception that active QT is an unnecessarily costly & distortive measure. Pare back the active sale component and surprise the market to the downside on the envelope of asset sales in 2025/26. It currently expects £75bn. Go to £50bn by going passive only, or go to £25bn and let reinvestment go to the long end of the Gilt curve. Second, and linked to this to mitigate accusations of fiscal dominance, provide a clear message that the government will help the Bank get control of inflation through being relentless in bearing down on employment “on costs” and the price ratchet from the pensions triple lock. Clearly this year it has been the NICs/ NLW pass through to consumer prices that has caused asymmetric UK inflation and an excuse to demand a higher UK inflation premium on Gilts - but what role will these taxes and pension policy have on pass through next year? The market currently only sees increased tax & regulatory burden for employers to pass on to end consumer prices. That cycle needs a circuit breaker that is not Bank Rate. Third, the UK energy market. No-one credible believes the nonsense that there is no trade off between Net Zero & growth. So sack your energy minister and explain that the UK is going to be energy pluralist and unconstrained to convince your creditors that growth is actually your primary mission. Investors will draw a straight line to higher trend productivity growth as plentiful energy is one of those factors of production that gets in all the cracks in the economy. Coordinated delivery of this message by PM and ChX is far superior to new appointees facing up to same old trade offs - get it right and there is a chance for well meaning supply side reforms & capital spending reforms to make an impact.

Feeling cheerful about Britain after reading today's Spectator