London Daily

Focus on the big picture.
Saturday, Jun 27, 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
Thames Water and Energy Operators Warn of Peak Demand Risks During UK Heatwave
Government Conference Highlights Push for Evidence-Led Policy Across UK Public Sector
Insolvency Service Reports Improved Confidence in UK Insolvency System
Security Industry Authority Finds Widespread Safety Failures in UK Night-Time Economy
Nigel Farage Expands Anti-WHO Campaign Into United States With New Lobbying Structure
Home Secretary Seema Mahmood Unveils New Safe Routes Plan for Asylum Seekers
UK Government Warns of Peak Electricity and Water Pressure Amid Ongoing Heatwave
New Nuclear Plant in Wales Named Gwyndod Power Station as Energy Strategy Advances
UK Announces First Major Hydropower Projects in Four Decades to Expand Renewable Capacity
Thirteen Men Charged in Major UK Sexual Abuse Case as Investigation Continues
UK Launches Cross-Sector Climate Security Taskforce Linking Environment and National Security
UN Secretary-General António Guterres Calls for Urgent Global Methane Emissions Cuts in London
World Bank Approves $1 Billion UK-Backed Financing Package for Ukraine Recovery
UK Pledges Emergency Aid and Rescue Team Deployment to Earthquake-Hit Venezuela
Bank of England Holds Interest Rates at 3.75 Percent for Fourth Straight Meeting
Record-Breaking Heatwave Puts Strain on UK Health Services and Energy Networks
London Ambulance Service Sees Record Emergency Demand as Heatwave Intensifies
British Chambers of Commerce Warns of Prolonged Weak Investment Climate Through 2027
Bank of England Holds Interest Rates as Inflation Risks Persist
UK Construction Sector Faces One Percent Contraction Amid Cost and Investment Pressures
Former DUP Leader Sir Jeffrey Donaldson Convicted of Sexual Offences
Church of England Appoints Dr Linsay Cunningham to Lead Faith and Public Life Division
UK Armed Forces Day Marked Nationwide With Events From Aberdeen to the Scilly Isles
Rising Tensions in Edinburgh Prompt Joint Warning From Scottish Local Government Leaders
UK Construction Sector Forecast to Contract One Percent in 2026 on Cost Pressures
UK Parliament Backs 87 Percent Emissions Cut as Government Deepens Electrification Drive
British Chambers of Commerce Forecast Weak UK Growth as Investment and Demand Slow
Bank of England Holds Interest Rates at 3.75 Percent Amid Energy and Inflation Uncertainty
London Ambulance Service Reports Record Surge in Life-Threatening Emergency Calls During Heatwave
UK Parliament Approves Legally Binding 87 Percent Emissions Cut Target by 2040
United Kingdom Records Third Consecutive Day of Record June Heat as Europe Faces Worsening Heatwave
Robert Jenrick Defends £5 Million Donation to Nigel Farage Amid Political Scrutiny
Plymouth Museum The Box Wins 2026 Art Fund Museum of the Year Award
UK Government Faces Backlash Over Plans to Use Former Military Sites for Asylum Accommodation
Labour Party Faces Pressure Over Cabinet Stability as Senior Figures Clash on Policy Direction
Heathrow Airport Forecasts Passenger Decline in 2026 as Costs and Climate Disruption Mount
UK Energy Regulator Approves Expansion of Long-Duration Storage to Boost Power System Resilience
Crown Estate Reports Third Consecutive Year of £1 Billion Profit as Debate Over Royal Finances Intensifies
Teenager Charged With Murder in Wales Following Death of 14-Year-Old Boy
Nottingham University Hospitals Maternity Failures Trigger Calls for Public Inquiry Into Patient Safety
EasyJet Rejects £4.9 Billion Takeover Offer From Castlelake but Keeps Door Open for Further Talks
Record Heatwave Triggers UK Transport and Infrastructure Strain as Heathrow Revises Passenger Forecast Downward
Ofgem Approves Sixteen Long-Duration Energy Storage Projects to Strengthen UK Grid Stability
Labour Government Faces Internal Tensions Over Cabinet Decisions and Net Zero Policy Direction
British Food and Drink Exports Fall to Decade Low Amid Trade Friction and US Tariffs
Great Britain Grid Operator Spends £10 Million to Stabilize Electricity Supply During Heatwave Demand Surge
UK Parliament Committee Calls for Urgent National Adaptation Strategy as Extreme Heat Strains Public Infrastructure
Record-Breaking Heatwave Pushes England’s National Health Service to Critical Incident Status as Hospitals Struggle With Surge in Emergencies
UK Government Launches Review of Voluntary National Insurance Contributions System
UK Planning Inspectorate Reports Key Infrastructure and Planning Milestones in Annual Review
×