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What does the 2024 Spring Budget mean for government bonds (gilts)?

Chancellor Jeremy Hunt delivered his 2024 Spring Budget on Wednesday. Here’s what it means for gilts and what the future could hold.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Many of the 2024 Spring Budget policy changes were widely anticipated ahead of Hunt’s speech. That meant investors had already priced in the marginal impacts they might have on government bonds (gilts).

As expected, the chancellor has kept expected future government finances within reasonable bounds, as defined by the Office for Budget Responsibility (OBR). This means markets are neither spooked nor happy – there isn’t a meaningful impact on the overall UK Plc finances from this budget.

At the time of writing, 6 March, gilt yields are broadly where they were at the start of the day, having increased during the morning and subsequently fallen back during and since Hunt’s speech.


Government bonds are a type of debt instrument where an investor lends money to the government. Most pay a fixed level of interest for the duration of the bond and repay the initial lump sum to the investor when the bond matures. UK government bonds are also known as gilts.

We’ve also heard from Federal Reserve (Fed) Chair Jerome Powell in the US about their views on inflation and the future direction of US interest rates. This also hasn’t moved gilt markets, with no change in his comments since the last Fed meeting.

The UK 10-year gilt yield intra-day move on 29 February from 4.25% to 4.12% was notably larger. This was because US inflation data came in as expected. The move in that same yield today has been from 4% to 4.05% and back again, signalling the relative calm with which the Budget has been received from the market.

The main talking points for gilts from the Spring Budget

  1. UK borrowing (the amount of gilts issued to the market) in 2024/25 will be higher than expected and is now thought likely to be around £265bn, instead of £258bn. While this is an increase, which on its own could potentially be bad for gilt prices, when coupled with expected higher growth, the impact is minimal.

  2. You might think that the ‘British ISA’ would be beneficial for gilts, given the consultation announced is to give savers an additional ISA allowance for investments specifically in the UK. However, this policy is focused on company shares rather than government bonds (the FTSE 250 is up around 1% at the time of writing). Government bonds aren’t subject to capital gains tax when bought directly, meaning there’s less demand for them within ISAs.

This article isn’t personal advice. All investments and any income from them can fall and rise in value so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.

What’s next for gilts?

Gilt yields are still higher now than they have been for a number of years. That means they offer a bigger return than they have done since the mid-2000s, assuming you hold them until they mature.

The higher yields on offer mean that historical diversification benefits of holding government bonds in an investment portfolio are likely back.

During the interest rate rising cycle, bonds and shares tended to move in the same way, both increasing and decreasing in value depending on data around inflation.

If inflation was expected to go higher or remain higher, this meant interest rates would also need to go higher. Higher interest rates are bad for prices of both bonds and shares.

Now we’re out of that cycle, interest rates could potentially go up or down from here. If there’s a market shock that’s bad for share prices, it’s quite possible that interest rates could be cut or that there could be a flight to the safety of gilts (the UK government is unlikely to go bankrupt, but companies might, depending on what the shock is).

In that scenario, shares would likely lose value and bonds would increase in value. So, the standard textbook theory that investing in both shares and bonds gives you a smoother investment return over time might be true again, although past performance isn’t a guide to the future.

That said, if interest rates fall because inflation is considered under control, then that will likely be good for both shares and bonds. We saw this in the final two months of 2023 where markets thought further rate rises were completely off the table and that rate cuts would be coming soon.

And what about investors who have bought gilts directly?

More and more people are buying gilts directly. A recent gilt sale that HL clients were able to access saw much higher demand than expected.

There are risks associated with this if investors are looking to trade these over time because there are lots of different bonds with different characteristics. This means that their prices will all change a bit differently, depending on the exact details of the bond.

However, if investors are looking to buy a gilt and hold it until maturity, this is another story.

It’s different because short-term changes in the price of the bond don’t matter.The price you paid at the time of investment dictates the return you’ll receive if you hold until maturity. This is an important point to remember for investors in this situation because bond prices can be volatile.

Remember, investors don’t have to pay capital gains tax on price rises from gilts that are bought directly (holding them through funds is different). But, any income received from gilts through coupons (interest payments) is subject to the investors marginal income tax rate.

Don’t miss the latest from the 2024 Spring Budget

As we dive deeper into the 2024 Spring Budget changes, there will be plenty more to come.

To make sure you don’t miss out on what all this means for you and your money, sign up to our new ‘Monday Money Matters’ personal finance newsletter.

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Written by
Hal Cook
Hal Cook
Senior Investment Analyst

Hal is a part of our Fund Research team and is responsible for analysing funds and investment trusts in the Fixed Interest and Multi-Asset sectors.

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Article history
Published: 11th March 2024