London Daily

Focus on the big picture.
Thursday, Apr 02, 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
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
Eli Lilly Seeks UK Pricing Deal to Unlock Renewed Pharmaceutical Investment
Three Arrested in UK After Massive Cocaine Haul Discovered Hidden in Banana Shipment
UK Fuel Prices Poised for Further Surge Amid Global Energy Pressures
Apple Subsidiary Penalized by UK Authorities for Breach of Moscow Sanctions
Western Allies Intensify Coordinated Sanctions Strategy Against Russia
UK Lawmakers Face Criticism Over Renewed Push for Social Media Restrictions
Starmer Signals UK Crackdown on Addictive Social Media Features
Rising Costs Push One in Five UK Hospitality Businesses to the Brink of Closure
Man Arrested on Suspicion of Attempted Murder After Car Strikes Pedestrians in UK, Injuring Seven
Escalating Conflict Involving Iran Tightens Fiscal Pressures and Highlights UK Economic Vulnerabilities
UK Moves to Confront Russian ‘Shadow Fleet’ Operating in Its Waters
UK Housing Divide Deepens as Older Owners Hold Wealth While Under-30s Face Mounting Barriers
London Demonstration Calls on UK to Recognize Iranian Opposition’s Provisional Government
UK Green Party Vote on ‘Zionism is Racism’ Motion Collapses Amid Internal Disputes and Technical Failures
SNL UK Ignites Debate with Sharp Royal Satire Targeting Prince Andrew and Prince William
EU Proposes ‘Emergency Brake’ to Resolve Deadlock in UK Youth Mobility Talks
Thousands Rally in London to Oppose Rise of Far-Right Movements
Hong Kong Official Rejects Allegations of Surveillance Orders Targeting UK-Based Dissidents
PayPal Expands Cryptocurrency Services to Allow UK Users to Buy and Sell Bitcoin
UK Minister Challenges Reform Party’s ‘Pro-Family’ Agenda as Debate Intensifies
Concerns Grow Over Meningitis Risk Among UK Students Amid Warning Signs of New Outbreaks
×