00:00John Healy is the surprise pick for UK Chancellor. So with Rachel Reeves out, what can markets expect?
00:07The initial reaction was relatively calm, with benchmark gilt yields steadying just over 5%.
00:12That's still the highest in the G10, and with debt-to-GDP above 95%,
00:17investors are watching closely for more detail on his plans.
00:21Healy resigned as Defence Secretary just a month ago in a row over defence spending.
00:25He's seen as a steady pair of hands, but his move to No. 11 raises an obvious question.
00:31Why appoint a Defence Secretary as Chancellor?
00:33The answer may lie in the new government's priorities.
00:36Prime Minister Andy Burnham has said he wants to give more power to local authorities and ease the cost of
00:41living.
00:42The government also needs to plug an almost £5 billion hole in defence spending in the next budget over the
00:48next four years.
00:49That's still short of a target to boost defence spending to 3% of GDP.
00:53One idea gaining traction is a revival of war bonds used during World War I and II,
00:59with bonds sold directly to households to plug the defence spending gap.
01:03Critics say war bonds would simply be more borrowing wrapped up in patriotic branding.
01:08Combined with Burnham's talk of using any flexibility within the fiscal rules,
01:13it could unnerve investors about the new government's approach to public finances.
01:17For gilt investors, it doesn't matter what the bonds are called.
01:20It simply matters if it adds to total borrowing.
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