London Daily

Focus on the big picture.
Friday, Oct 09, 2026

Markets react negatively to Truss speech spelling out corporation tax U-turn

Markets react negatively to Truss speech spelling out corporation tax U-turn

As was widely predicted, the prime minister announced she is abandoning the government's commitment to drop the planned corporation tax rise from 19% to 25% - even though it was a central plank of her Tory leadership campaign.

The financial markets have responded negatively following Liz Truss's announcement of a U-turn on corporation tax in a bid to reassure investors.

As was widely predicted, the prime minister said she was abandoning the government's commitment to drop the planned tax increase from 19% to 25% - even though it was a central plank of her Tory leadership campaign.

Speaking at a news conference, Ms Truss said she had decided to keep the rise, a move which would boost the public finances by £18bn a year.

But UK government borrowing, necessary for planned large amounts of state spending, has become more expensive since Ms Truss's announcement in Downing Street, despite earlier more positive market sentiment when news of the tax U-turn began to emerge.


On Friday morning, the markets had already priced it in as gilt yields, the interest rate payments on long-dated government bonds, effectively state IOUs, fell while the pound rose against the dollar and the euro.

The 30-year gilt yield had sunk from near a high of 5% on Thursday following Sky News's announcement of the U-turn, to 4.3% on Friday morning.

But that began to increase after Ms Truss's speech and as of 4.30pm on Friday the rate rose to 4.8%.


Similarly 20-year gilts fell from near a high of 5% to 4.42% on Friday before slightly rising again to 4.68% after Ms Truss spoke.

The fall in the interest rate of the benchmark 10-year government gilt yield had also been large, from 4.3% on Thursday to slightly above 4% on Friday. That gain was lost by late Friday afternoon when the interest rate stood at 4.18%.

These gilts are the bonds that had been bought up as part of the Bank of England's unprecedented intervention in the market to prevent a collapse in pensions as the market doubted the credibility of the UK's economic plans.

The interest rates had risen sharply following the mini-budget announcement, causing a massive sell-off, before the Bank announced its 13-day intervention on 28 September. That intervention ended on Friday afternoon.

Paying for goods in US dollars, as importers do, has also become more expensive as the pound slid in value. Drops in the value of the pound signal a lack of confidence from investors in the UK market.


Overall, however, sterling buys more US currency on Friday than at any point in the past seven days. On Friday afternoon £1 bought $1.12.

Markets are now also betting the Bank of England's base interest rate, which determines the cost of borrowing in the UK, is going to be lower than had been expected earlier this week.

A rate of 5.25% is now forecast, the lowest rate forecast since the money budget and a large drop from the 5.75% that was priced by UK money markets on Thursday.

That reduction is likely to reduce mortgage rates which had steadily risen since the mini-budget announcement as lenders pulled mortgage products from the market amid uncertainty over how much the Bank of England would raise rates.

On Friday morning, there were 3,112 mortgage products on the market, still lower than before the mini-budget was announced, but an increase from the 10-year low of 2,258 mortgages available on 1 October.

Mortgage rates had risen significantly since the mini-budget date on 23 September.

On Friday the average interest rate on a two-year fixed term mortgage was 6.47%, and 6.29% on a five-year fixed term mortgage was. It's nearly a 2% increase from the 4.74% and 4.75% average rates for two and five-year fixed term mortgages that existed prior to the mini-budget.

Newsletter

Related Articles

0:00
0:00
Close
UK and Germany Finalize Kensington Treaty to Strengthen Defense and Technology Cooperation
Britain Maintains Diplomatic Mission in East Jerusalem Despite Israeli Closure Deadline
English Councils Push Government to Rethink Proposed Funding Cuts
Scottish Homebuilding Falls to Lowest Level in 11 Years
BBC Chief Matt Brittin Defends Restructuring as Staff Challenge Job Cuts
UK Finance Warns High Energy Costs and Bond Yields Are Complicating Fiscal Outlook
UK Adopts All 44 Recommendations on Regulating AI in Healthcare
Chancellor John Healey Prepares Autumn Budget as Borrowing Costs Strain Public Finances
UK Investigators See Strong Indications of Iranian Link After RAF Fairford Security Operation
Laura Trott Pledges Tighter Controls on Political Activism in UK Classrooms
Welsh Ministers Launch Long-Term Review of North Wales and Anglesey Crossings
Welsh Government Orders 18-Month Study of Road Solutions Around Newport
Reform UK MP Sarah Pochin Faces Scrutiny Over £800,000 Second Home Purchase
British Households Grow More Concerned About Fuel and Energy Prices
NHS Leaders Warn of Rising Winter Pressure on Emergency Departments
Kemi Badenoch Proposes £2.3 Billion Employer National Insurance Cut for Young Workers
Middle East Conflict Could Erase UK Fiscal Headroom, Economists Warn
Manchester City Found Guilty of Multiple Premier League Financial Rule Breaches
UK Security Services Find Strong Indications of Iranian Role in RAF Fairford Incident
Costa Coffee Returns to Operating Profit on Iced Drinks and Menu Changes
Asos Warns Customers After Unauthorized Access to Retail App and Data
Kemi Badenoch Puts Growth and Deregulation at Center of Conservative Conference
Campaigners Warn of Deepening Social Care Crisis for Disabled Adults
Study Finds Rising Early-Onset Cancer Rates Among Adults Under 50 in Britain
UK Coach Operators Warn High Diesel Prices Could Force Route Cuts
FCA Opens Independent Review Into Handling of Epstein-Linked Whistleblower Case
Argentina Vows to Block Falkland Islands Offshore Oil Development
UK Chancellor Prepares Fiscal Measures and Welfare Reforms Ahead of Autumn Budget
Sainsbury’s and Morrisons Explore Potential Multi-Billion-Pound Merger
UK Weighs Tariffs on Chinese Electric Vehicles to Align With European Union
UK Threatens Diplomatic Expulsions Over Planned Closure of East Jerusalem Consulate
UK Energy Price Cap Hits Three-Year High as Middle East Conflict Raises Costs
Seventh Arrest Made in Suspected Terror Plot at RAF Fairford
Systemic Education Collapse Sparks Mass Student Uprisings in France
Green Party Faces Backlash Over Resolution Equating Zionism With Racism
Conservatives Debate Scrapping Environmental Rules for New Homes
Cornwall Insight Warns UK Energy Bills Could Approach £2,000 This Winter
UK Coach Operators Warn of Service Cuts as Diesel Prices Exceed £2
Scottish Parliament Approves £68 Billion Budget With New Tax and Property Measures
FCA Opens Independent Review Into Handling of Epstein Whistleblower
UK Government Drops Plan to Suspend Jury Trials in England and Wales
Bank of England Holds Interest Rate at 3.75% as Markets Watch November
Two Iranian Nationals Charged Over Alleged Plot Targeting Manchester Jewish Community
UK Fiscal Headroom Halves to £11 Billion Ahead of Budget, EY Warns
US Bomber Withdrawal From RAF Fairford Prompts UK Security Review
Sarah Wakfer Appointed Chair of Northern Ireland’s Health and Care Regulator
Scotland Housing Completions Fall to 11-Year Low Amid National Shortage
UK Water Companies Face Tougher Oversight and Unannounced Regulatory Inspections
Middle East Conflict Pushes UK Fuel and Wholesale Energy Prices Higher
Andy Burnham Raises Prospect of Second Brexit Referendum in Review of UK-EU Relations
×