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Britain to sell fewer bonds in 2014-2015 on better economic outlook
March 14, 2014 / 5:45 PM / 3 years ago

Britain to sell fewer bonds in 2014-2015 on better economic outlook

Shoppers are reflected in the window of a store on Oxford Street in central London December 29, 2013.Neil Hall

LONDON (Reuters) - Britain will sell slightly fewer government bonds in its coming fiscal year as stronger economic growth and better public finances reduce its borrowing needs, a Reuters survey showed on Friday.

The median forecast from a poll of 14 primary dealers over the past week is for the Debt Management Office to issue 150.5 billion pounds ($251 billion) of gilts in the year starting in April - less than the 153.7 billion pounds that it plans to sell in 2013-2014.

Britain posted faster-than-expected growth in 2013, and some analysts expect the Office for Budget Responsibility (OBR) to again revise higher its 2014 forecast, which at 2.4 percent remains one full percentage point below the Bank of England's.

"The improved growth outlook for the coming year should reduce the borrowing requirement and again reinforce the case for lower gilt issuance," said Alan Clarke, economist at Scotiabank.

He expects the OBR to raise its economic growth forecast to about 3 percent and for gilt issuance to fall to 145 billion pounds.

Deficit reduction has been finance minister George Osborne's key policy since the Conservative-led coalition came to power in May 2010 when Britain's budget deficit was one of the world's largest at 11 percent of economic output.

Osborne is on course to meet his borrowing target for 2013-2014 but Britain's disappointingly low budget surplus in January means he is unlikely to have much of a windfall to play with before national elections in May 2015. {ID:ID6N0LQ2B6]

Even so, Clarke said "the central government net cash requirement for the current financial year is running about 10 billion (pounds) better than expected" which would be a key reason behind the reduced issuance this coming fiscal year.

Brian Hilliard, an economist at Societe Generale, expects the amount of gilts issued to fall to 142.5 billion pounds as the government sells more treasury bills, having reduced them in the previous year, and carries out another sale of shares in Lloyds bank, generating an expected 7 billion pounds from the latter.

Lloyds was rescued through a 20.5 billion pound government bailout during the 2008 financial crisis, leaving taxpayers with a 39 percent stake. The government sold a 6 percent stake last September.

Any changes to the proportion of gilts issued across different sectors would only be gradual, the survey showed.

Primary dealers expect long-dated and index-linked bonds to make up 22 and 25 percent of total gilt issuance respectively in 2014-2015, according to the survey.

That compares with the 22.3 and 24.4 percent planned for 2013-2014, according to the government's 2013 Autumn Statement.

Editing by Hugh Lawson

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