Merryn Talks Money Could a Fiscal Crisis Bring Down the Government?
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Sep 29, 2025 Roger Lee, head of equity strategy at Cavendish with nearly 30 years in equity markets, dives deep into the UK's fiscal risks. He discusses how deteriorating public finances might lead to a fiscal crisis—moving from a slow burn to sudden upheaval. Lee highlights recent borrowing overshoots and market concerns over gilt yields. He also examines potential political ramifications of an emergency budget and gives insights on which sectors might thrive or struggle during a fiscal event. Overall, it's a riveting discussion on the intertwining of finance and politics.
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What A Fiscal Event Looks Like
- A fiscal event is when gilt yields rise very rapidly, forcing central bank intervention to stabilise markets.
- Roger Lee cites the 2022 Truss episode as the archetypal fiscal event where yields spiked ~100bps in days.
Current Borrowing Overshoot Is Material
- August public sector borrowing overshot OBR monthly expectations by ~40%, signalling a meaningful revenue/spend mismatch.
- Roger Lee warns that five-month overshoot implies an annualised extra ~£40bn if the run rate persists.
OBR's Assumptions May Be Overly Optimistic
- The OBR expects lower debt interest and higher capital receipts to reduce the deficit later in the year.
- Roger Lee notes gilt yields already exceed the OBR's 10-year assumption (4.5%), undermining that expectation.