Gilt markets will face a volatile few years and over the long-term could see yields widen to around six percent economists and bond specialists have said.  

Currency markets reacted immediately to the budget yesterday and news that gilt issuance will increase by almost £100 billion more than previous estimates to £220 billion.

Sterling, which had been weak against a basket of major currencies ahead of the budget, fell back two cents, or 1.49%, to $1.4460 and two cents to 1.11 euros following it.

Neptune economist James Dowey said that the biggest influence on short-term trading was likely to be the tarnished credibility of government plans to bail out the economy.

Darling’s revenue assumptions were ‘highly optimistic’ he added. ‘He is assuming that the economy is going to rebound strongly and the market doesn’t think so.’

‘People will be buying this debt but the question is what price people will be buying it at.’

HSBC Private Bank chief economic strategist Frederik Nerbrand said that the government appeared not to realise the extent of the problems it was storing up.

He said that long-term, the consequences of the £220 billion issue and scarcely improved issuance in years after were likely to be extremely destabilising to the UK.