London Daily

Focus on the big picture.
Saturday, Aug 08, 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
Australian Crew Evacuates Seriously Ill American From Antarctica in Midwinter Darkness
Trump’s Top General Seeks an Exit Strategy From Iran War, Report Says
Brock Lesnar Retires From Wrestling, Closing a Career of Rare Athletic Range and Lasting Controversy
Welsh First Minister Raises Independence With UK Prime Minister in First High-Level Call
UK Maintains Severe Terror Threat Level as Prevent Report Highlights Online Radicalization
YouGov Poll Shows Labour Favourability Improves as Reform UK and Greens Lose Ground
Brexit Campaigner Arron Banks Admits Hiring Private Investigator to Examine Journalist
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
July 2026 Was England and Wales’ Driest Month on Record, Met Office Says
UK Government Considers Public Inquiry Into Jeffrey Epstein’s UK Connections
Trump-Era Policy Shifts Test the Boundaries of U.S. Institutions
UK Drought Cuts Harvests and Raises Food-Security Fears
UFO: Pentagon Releases Video of Unidentified Object Tracked Over Middle East
US Health Secretary: “I’m Not Afraid of Germs — I Used to Snort Cocaine Off Toilet Seats”
Ukraine Tells Senate Republicans Its Drone War Offers a Blueprint for America
Weight-Loss Drug Boom Tests the Limits of Prescription Advertising Rules
Trump Keeps Hegseth at Pentagon While Leaving Door Open for DeSantis
UK Clears Paramount’s Warner Bros. Discovery Deal, but US Trial Looms
UK Prosecutors Add 38 Charges Against Andrew and Tristan Tate
Taiwan’s President Joins Wartime Command Drill as China Pressure Grows
Saudi Arabia, Turkey and Pakistan Sign Mutual-Defence Pact
Government Orders Review of Prison Release Rules After Concerns Over Grooming Gang Offenders
Rail Disruption Continues Across North-West England Amid Infrastructure Problems and Engineering Closures
UK Tax Authority Proposes Broad Changes to Rules Governing Company Distributions
UK Government Moves to Protect Standing Areas Outside Pubs From Local Restrictions
Extreme Right-Wing Referrals Under UK Prevent Programme Rise 42 Percent
EU Citizens in UK Warned That Some Residency Rights May Have Been Granted in Error
Every Monitored Body of Water in England Fails Chemical Purity Standards, Government Data Shows
UK Scientists Create First Artificial Intelligence-Designed Viruses
England Orders Primary Schools to Identify Children at Risk of Becoming Disengaged From Education or Work
Government Moves to Close Prison Release Loophole Amid Concern Over Grooming Gang Offenders
UK Economy Shows Modest Growth Despite Energy Volatility and Global Supply Pressures
Police and Prosecutors Failed to Stop Sex Offender Who Later Murdered Two Women, Review Finds
Millions in England Face Longer Mental Health Waiting Times as NHS Providers Cut Spending
Met Office Warns of Heatwave as Temperatures Across England and Wales Could Reach 36 Degrees Celsius
HMRC’s 2029 Tax Shift Could Overlap Old and New Self-Assessment Bills
Thetford Disorder Prompts Expanded Police Powers Amid Asylum-Housing Protests
Cambridge Faces Calls for Independent Review of Jason Arday Appointment
Scotland’s ‘Cock of the North’ Woodland Is Being Felled After Wind Damage
Reform UK and Greens Unite Against Vast Solar Plans for Kent Marshland
New Zealand Draws Wealthy Americans With Revamped Investor Visa
Senate Panel Votes to Hold Anthony Fauci in Contempt After Fifth Amendment Testimony
Cambridge Professor Jason Arday Resigns as University Opens Inquiry Into His Credentials
Manchester Power Failure Disrupts Trains Across North West Into Friday
UK Fashion and Tourism Sectors Prepare for Strong Summer and Autumn Activity
London Residents Seek Appeal Against Approval for Chinese Super-Embassy Development
UK Environment Officials Issue Biosecurity Alert Over Rising Bluetongue Cases in Livestock
UK Charity Regulator Opens Investigations Into Donations Linked to Israeli Settlements
Gatwick Expansion and Chinese Embassy Plans Highlight Growing UK Infrastructure Disputes
UK Agriculture Authorities Warn of Rising Bluetongue Virus Cases Among Sheep Farms
×