Reeves' Budget Reversal Sparks Bond Market Selloff
Reeves' Budget Reversal Sparks Bond Market Selloff
Chancellor Reeves abandons planned income tax rise, triggering market jitters and a push for more budget headroom ahead of November’s speech.
Chancellor Reeves has stepped back from plans to raise income tax, a move that sent shockwaves through the bond market as investors reprice UK debt. The shift, described as the government’s cautious balancing act, left traders uneasy about the government’s fiscal path and its ability to meet borrowing rules. The Week's developments included dropping other kites being flown—from extra tax on partnerships to concerns about entrepreneurs leaving the UK—injecting fresh doubt about the appetite to exchange political pain for lower bond yields. Even when marginally better economic forecasts helped reduce the budget gap, market jitters returned, and yields rose again by day’s end. Insiders said the Budget strategy “remains the same,” aiming to build substantial headroom to meet borrowing rules, far above the current £10bn a year, so as to tackle cost of living pressures and make “fair choices” on tax. This plan points toward a broad approach that would squeeze wealth, capital and income from those sources rather than the pay packets of workers. There are real questions about loose lips in Whitehall, the potential for floated tax reforms, and their impact on markets. It’s worth noting that final decisions on the Budget had not yet been made, and as the process continues, the aim is to keep things smoother once the big speech on November 26 approaches.
