Gilt Sales to Drop 6% as U.K. Avoids Recession, Transfers Assets

U.K. Chancellor of the Exchequer George Osborne
George Osborne, U.K. chancellor of the exchequer, will present his budget today amid calls to temper the deepest spending cuts since World War II, and inject money into an economy that is struggling to grow with joblessness at a 16-year high. Photographer: Simon Dawson/Bloomberg

U.K. gilt sales will drop more than 6 percent in the next fiscal year as Britain avoids a recession and the transfer of pension-fund assets cuts borrowing needs.

Britain will issue 167.7 billion pounds ($221.7 billion) of gilts in the fiscal year starting next month, the London-based Debt Management Office said today. The sale plans were released after Chancellor of Exchequer George Osborne’s budget report to Parliament. That compares with 178.9 billion pounds planned for the current fiscal year and an estimate of 180 billion pounds in Bloomberg survey of primary dealers that trade directly with the debt agency.

The government’s borrowing needs were reduced partly by the transfer of about 11 billion pounds of gilts from the Royal Mail Pension Plan into public ownership, and also by sales of 13.6 billion pounds more debt than needed this year, according to the Debt Management Office.

“The government is going to sell fewer gilts than earlier thought in the fiscal year 2012-2013 of because one-off factors such as the Royal Mail transfer and overfunding,” said Marchel Alexandrovich, a senior European economist at Jefferies International Ltd. in London. “The U.K. will perhaps avoid recession and that’s good news, but it doesn’t mean it is out of the woods yet.”

Economic Expansion

Forecasts from the nonpartisan Office for Budget Responsibility show the economy expanding 0.8 percent this year, up from a November estimate of 0.7 percent, Osborne told Parliament in London today. Gross domestic product shrank 0.2 percent in the last three months of 2011.

The 10-year gilt yield fell four basis points to 2.38 percent at 3:20 p.m. London time.

Prime Minister David Cameron’s government is seeking to retain the U.K.’s AAA credit rating by erasing the bulk of the deficit by 2017 and taking measures to support growth that don’t require additional borrowing. The budget shortfall almost doubled last month, data released today showed.

The planned issuance for the next fiscal year exceeds the average 102 billion pounds annually over the past 10 years. The amount will cover repayments of bonds maturing in the next fiscal year, which the Debt Management Office estimates at 52.9 billion pounds. Gilt issuance reached a record 227.6 billion pounds in the year ended in March 2010.

Gilts have lagged behind U.S. Treasuries, German bonds and Japanese debt this year, losing 3.1 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.K. bonds returned 17 percent last year, the best of 26 EFFAS sovereign-debt indexes, as investors sought a refuge from the euro-region’s debt crisis.

Fitch Ratings said March 14 that there’s a “slightly greater” than 50 percent chance that Britain’s AAA rating will be reduced within two years, citing the pace of economic recovery, debt levels and threats from Europe’s debt crisis, which it said leaves the country limited room to deal with shocks.

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