London Daily

Focus on the big picture.
Thursday, Oct 09, 2025

Tax rate U-turn lifts pound but markets still fret over government credibility

Tax rate U-turn lifts pound but markets still fret over government credibility

The chancellor's announcement helped lift sterling and UK bond yields, but market commentators say there is still a big question mark hanging over the new government's economic policies.

The pound and government bond yields have recovered some poise in the wake of the government's U-turn on abolishing the top rate of income tax.

Kwasi Kwarteng revealed early on Monday morning that the decision to axe the 45p rate - part of his growth plan revealed last month - would now not happen in April as he had announced just 10 days ago.

The measures were badly received by the financial markets as they were seen as placing too much strain on the public finances, with the tax cuts set to cost £45bn alone.

The crisis of confidence saw sterling hit record lows against the dollar a week ago while the Bank of England later had to intervene to restore market functionality for pension funds when long-dated government bond yields surged.

The yield - the effective interest rate demanded by investors to buy UK government debt - on the 30-year bond had nudged to levels not seen since 2002 before the Bank said it would buy bonds to support the market.

In a statement on Monday afternoon the Bank reaffirmed its commitment to buying up to £5 billion of long-dated gilts at each of its daily auctions. Gilt prices fell sharply in the wake of the announcement, and 30-year yields jumped more than 30 basis points after the announcement.

Monday morning's government climbdown had seen the yield, briefly, climb back to where it was ahead of the mini-budget.

The same could be said for the pound.


'The market was panicking'


But market commentators cautioned that it was likely some respite only.

AJ Bell's investment director, Russ Mould, noted that sterling had jumped from $1.1088 to $1.1264 in less than two hours on Monday morning.

"The U-turn is important for two reasons", he wrote.

"First, the market was panicking about the cost of the tax cuts and how that would push up government debt and in turn raise the prospect of reduced public spending and benefit cuts.

"Removing one of the key components of this seemingly flawed plan provided some relief, and you saw that in how the pound rallied and 10-year gilt rates briefly fell below 4%."

'UK faces challenging times'


"The other factor to consider is that Kwarteng has effectively admitted to a massive policy error only weeks into his tenure as chancellor," Mr Mould continued.

"If Liz Truss is to establish any credibility as prime minister, can she afford to have anyone on her team who has effectively scored an own goal in the opening game?

"The fact that both the pound fell back, and gilt rates started to move higher after the news had been digested, is the market's way of saying there are still plenty of problems with the government's finances, state of the consumer and business, and economic outlook.

"With or without the 45% tax cut, the country still faces challenging times with individuals and companies finding life a lot harder."

Mr Mould noted that the FTSE 100 fell 1% to 6,827 - dragged down by miners, financial services and consumer goods firms.

"Many of these earn in dollars and so a stronger pound - even if just a temporary move - is bad for them", he explained.

The FTSE 100's declines were in line with those on the continent where investors were also reacting to the latest evidence of recession ahead.

Closely-watched surveys of purchasing managers in the manufacturing sector all pointed to slowdowns - largely due to surging inflation.

In the case of the UK, a third consecutive monthly decline in activity was noted with rates of inflation in input costs and selling prices both picking up linked, in part, to the weaker pound.

By market close in London the FTSE 100 had closed up 0.2%, nearly 15 points, ending the day at 6,909.

Newsletter

Related Articles

0:00
0:00
Close
China Unveils Sweeping Rare Earth Export Controls to Shield ‘National Security’
The Davos Set in Decline: Why the World Economic Forum’s Power Must Be Challenged
France: Less Than a Month After His Appointment, the New French Prime Minister Resigns
Hungarian Prime Minister Viktor Orbán stated that Hungary will not adopt the euro because the European Union is falling apart.
Sarah Mullally Becomes First Woman Appointed Archbishop of Canterbury
Mayor in western Germany in intensive care after stabbing
Australian government pays Deloitte nearly half a million dollars for a report built on fabricated quotes, fake citations, and AI-generated nonsense.
US Prosecutors Gained Legal Approval to Hack Telegram Servers
Macron Faces Intensifying Pressure to Resign or Trigger New Elections Amid France’s Political Turmoil
Standard Chartered Names Roberto Hoornweg as Sole Head of Corporate & Investment Banking
UK Asylum Housing Firm Faces Backlash Over £187 Million Profits and Poor Living Conditions
UK Police Crack Major Gang in Smuggling of up to 40,000 Stolen Phones to China
BYD’s UK Sales Soar Nearly Nine-Fold, Making Britain Its Biggest Market Outside China
Trump Proposes Farm Bailout from Tariff Revenues Amid Backlash from Other Industries
FIFA Accuses Malaysia of Forging Citizenship Documents, Suspends Seven Footballers
Latvia to Bar Tourist and Occasional Buses to Russia and Belarus Until 2026
A Dollar Coin Featuring Trump’s Portrait Expected to Be Issued Next Year
Australia Orders X to Block Murder Videos, Citing Online Safety and Public Exposure
Three Scientists Awarded Nobel Prize in Medicine for Discovery of Immune Self-Tolerance Mechanism
OpenAI and AMD Forge Landmark AI-Chip Alliance with Equity Option
Munich Airport Reopens After Second Drone Shutdown
France Names New Government Amid Political Crisis
Trump Stands Firm in Shutdown Showdown and Declares War on Drug Cartels — Turning Crisis into Opportunity
Surge of U.S. Billionaires Transforms London’s Peninsula Apartments into Ultra-Luxury Stronghold
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Taylor Swift’s ‘Showgirl’ Launch Extends Billion-Dollar Empire
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
×