UK Budget Risks Stoking Inflation if Pre-Election Giveaways Breach Fiscal Rules

• Bond investors positioning for potential inflation rise if UK Chancellor delivers pre-election giveaways in budget • Tax cuts could increase consumer prices, making it difficult for Bank of England to cut rates as much as expected • Traders have slashed rate-cut expectations amid worries on persistent inflation and resilient consumer spending • Chancellor has limited room for large-scale tax cuts due to fiscal rules requiring debt reduction • Any fiscal stimulus risks further deteriorating backdrop for UK bonds which have already selloff this year