Budget Watch Archive
Discover all the past issues of the Institute's Monthly Budget Watch report.
September 2026
August was a difficult month for investors in sovereign debt. Markets have woken up to the scale of new issuance globally, while inflation prospects are clouded by military and geopolitical headwinds, particularly in the Middle East. The oil price has now been above $100 a barrel for a fortnight, with no early end in sight. The US Federal deficit in August was $168b., substantially (no less than $177b.) lower than in August 2025. But hopes for a return to fiscal seriousness were spoilt by President Trump’s political showmanship. His offer of $5,000 of 2027 tax cuts for each adult, on condition that the Republicans hold Congress in the mid-term elections, would have a potential 2027 cost of some $1,300b. Recent adverse moves in most sovereign yields have been swift. For example, French and Italian 10-year bond yields increased by 58 and 43bp respectively in a month, US and German similar yields by 32bp each, and the UK by 25bp. The trouble has been particularly serious for Japan. The 10 year bond yield was practically zero in the seven-year period of 2016 – 22 inclusive but has flirted with 3% in recent sessions. This is the highest number since the 1990s. (Ewen Stewart)
August 2026
While all jurisdictions examined have budget deficits, the changes in these deficits continue to vary greatly. Some places have reduced their deficits (as measured by the moving average of the cumulative 12-month total) so far in 2026, notably the USA, China, the UK and France.
However, Germany and Italy have had rising deficits, and the increase in Japan’s deficit has been dramatic. The Japanese vast swing into a first-quarter deficit reflected the announced policy intentions of the Takaichi government, but has been followed by marked yen weakness
on the foreign exchanges. The USA had a wider Federal deficit as has had a higher bill for debt interest (and inflation compensation on inflation-protected bonds), but total Federal spending is down on a year earlier in nominal terms. By implication, discretionary Federal spending has been cut sharply. The US deficit/GDP ratio is down in 2026, although the debt/GDP ratio continues to climb. Financial market confidence remains fragile everywhere, with substantial upwards shifts in government bond yield curves in the Eurozone and Japan in particular over the last year. (Tim Congdon and Ewen Stewart)
July 2026
While all jurisdictions examined have budget deficits, the changes in these deficits vary greatly. Some places have reduced their deficits (as measured by the moving average of the cumulative 12-month total) so far in 2026, notably the USA, China, the UK and France. However, Germany and Italy have had rising deficits, and the increase in Japan’s deficit has been dramatic. The Japanese vast swing into a first-quarter deficit reflected the announced policy intentions of the Takaichi government, but front-loading of the Keynesian “stimulus” may have occurred. Keynesian economists have to expect Japan’s economy to boom, given the scale of the fiscal so-called “stimulus”. This is a fascinating experiment and the Q2 number will need to be watched. The USA has had a higher bill for debt interest (and inflation compensation on inflation-protected bonds), but total Federal spending is down on a year earlier in nominal terms. By implication, discretionary Federal spending has been cut sharply. The US deficit/GDP ratio is down in 2026, although the debt/GDP ratio continues to climb. Financial market confidence remains fragile everywhere, with substantial upwards shifts in government bond yield curves in the Eurozone and Japan in particular over the last year. (Tim Congdon and Ewen Stewart)