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Budget the highlight for the week ahead

UK
  • After last week's roadmap out of lockdown was released by the government, focus will this week turn to the Budget which is due to be delivered by Chancellor Sunak on Wednesday. We will release our full Budget preview tomorrow but the headline measures announced are likely to be an increase in corporation tax (to 23-25% over the next few years), probably a freezing of income tax bands (i.e. they will not rise with inflation), additional taxes on internet sales and an extension of Covid-19 support schemes most likely until June.
  • From the previews we have read so far, the extension of these support schemes is likely to cost GBP20-30bln. However, as we noted in last week's Gilt Week Ahead, the OBR's monthly commentary has shown borrowing to be GBP39.8bln lower than expected year-to-date (excluding exceptionals). Some of this is due to less deferrals of tax payments than had been expected, but some is due to lower spending. As a caveat, the current lockdown was not included in the OBR's forecasts and the economy is likely to return to normal at a later date than previously expected.
  • With the exception of any surprises to fiscal measures, much of the market reaction is likely to be in reference to the gilt remit for 2021/22 of which we have seen estimates ranging from GBP225-295bln, with the median just below GBP250bln from the preview we have read so far.
  • It is unclear if any separate issuance plans will be released for the new green gilts and whether there will be any details in terms of maturities or expectations of size. Most expectations are that GBP10-15bln will be raised through green gilts in FY21/22. It has also been reported that NS&I will launch the first sovereign green retail bond.
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