KEY MESSAGES

• Despite the uncertain economic outlook, the UK is still set for a big fiscal stimulus from Chancellor Rishi Sunak’s first Budget on 11 March.
• On paper, the Chancellor has limited room for big fiscal giveaways, and he may wait for more clarity later this year for some decisions.
• Nonetheless, we don’t expect a delay to the Government’s ‘levelling up’ investment agenda. Moreover, he could bend or suspend the fiscal rules to give himself more flexibility (in particular on measures to help fight the impact of the virus).
• This fiscal boost is one of the reasons we think the Bank of England may be more measured compared to other central banks in terms of rate cuts in response to the Covid-19 shock.

• We expect total gilt sales for debt financing would rise to GBP159.1bn (cash) in FY 2020/21, from GBP136.8bn (cash) this fiscal year and the range of possible outcomes is skewed more to the upside.
• We expect the share of linkers to continue to fall. In conventionals, we expect the share of shorts and mediums to remain broadly stable, while the share of longs could compensate our expected continuous decrease in the share of index-linked gilts.
• With long-end RPI breakevens finding themselves at the lower end of the recent trading range, we are inclined to go long RPI breakevens, expecting the range to prevail.
• New trade: Long 30y RPI. Entry: 2.96%. Target: 3.15%. Stop: 2.90%. Carry and roll: +3.5bp/3m.