Brown cut will not start debt flood

THE City confidently predicted that the Government will not flood the gilt market with new debt, despite widespread predictions Gordon Brown will slash his economic growth forecasts in Tuesday's Pre-Budget Report. Most economists say the Chancellor will lower his estimate for next year to a range of 1.75% to 2.25%, half a percentage point lower than intimated in the March Budget.

That would mean a public sector borrowing requirement of about £8bn for the next fiscal year and some £15bn the year after, compared with Budget projections of £5bn and £12bn respectively.

In theory, a bigger borrowing requirement implies the Government would have to boost the amount of gilts it issues to finance the extra borrowing. But experts say extra supply will be negligible and will not put pressure on gilt prices.

The Debt Management Office has a piggy bank of short- term assets which it is likely to run down rather than issue new gilts,' said Investec's David Page. Today, gilt futures prices nudged higher.

Mark Capleton, gilt strategist at Barclays Capital, said: 'The DMO has hinted it is happy with the size of the Treasury bill (gilt) market, which would indicate any funding shortfall would have to come from the DMO cashpile.'