Gilts, Pound Decline on Concern Government Will Boost Borrowing

By Anchalee Worrachate

Nov. 24 (Bloomberg) -- U.K. gilts declined and the pound fell on speculation the government will have to increase borrowing to a record as a looming recession chokes tax revenue.

Ten-year gilts snapped four days of gains before Chancellor of the Exchequer Alistair Darling presents a pre-budget report to Parliament today, in which he will outline the government’s spending plans. The U.K. will sell 135.4 billion pounds of gilts this fiscal year, an all-time high, according to the median forecast of 10 U.K. primary dealer banks surveyed by Bloomberg.

“Spending will need to rise massively while revenue is falling,” said Marc Ostwald, a fixed-income strategist at Monument Securities in London. “We are going to have a colossal amount of gilt issuance.

The yield on the 10-year note rose two basis points to 3.87 percent as of 10 a.m. in London. The price of the 5 percent due June 2018 fell 0.12, or 1.20 pounds per 1,000 pound ($1,491) face amount, to 104.15.

The pound dropped to $1.4914, from $1.4925 last week. Against the euro, it lost 0.2 percent to 84.51 pence, from 84.37 pence. The sterling has lost 49 percent against the yen and 34 percent against the dollar since June.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net;