UK Stocks, Bonds, and Currency All Fall as Markets Fear Another "Truss Moment" is Nearing
With just two weeks until the release of the UK's Autumn Budget, the latest news of a sudden reversal regarding the widely anticipated tax hikes has triggered turmoil in UK financial markets. During the day, the yield on the UK 10-year government bond saw its largest jump since July, while the FTSE 100 index recorded its biggest one-day drop since April.
As the Labour government's proposed measures to fill the fiscal gap performed a "U-turn," UK government bonds, the pound, and UK stocks all weakened together after European markets opened on Friday.
Thanks to the chaos of autumn 2022, markets are now characterizing this as the UK government approaching another "Truss Moment."
At the time of writing, the most affected UK 10-year government bond surged by over 10 basis points in early trading (Note: a rise in yield means bond prices are plunging), marking the most volatile moment for UK gilts since July. The pound, under pressure, weakened, hitting a nearly two-year low against the euro. The FTSE 100 index, which is closely watched by foreign investors, fell nearly 1.5%, marking its largest single-day drop since April.
As background, UK Chancellor Rachel Reeves is set to announce the Autumn Budget on November 26th. Facing a budget shortfall of nearly £20 billion, markets widely expected the Labour government to announce an increase in income tax. In a speech earlier this month, Reeves explicitly stated that she would make the "necessary choices" in the fiscal budget in the face of "more challenges from the world."
It is reported that one alternative is to lower the thresholds for different income tax rates, thereby keeping the nominal tax rates unchanged. Sources familiar with the briefing indicated that Reeves will also heavily rely on a so-called "buffet-style" approach, which involves raising rates for some highly targeted taxes, such as a new betting tax and higher rates on high-value properties.UK Stocks, Bonds, and Currency All Fall as Markets Fear Another "Truss Moment" is Nearing
With just two weeks until the release of the UK's Autumn Budget, the latest news of a sudden reversal regarding the widely anticipated tax hikes has triggered turmoil in UK financial markets. During the day, the yield on the UK 10-year government bond saw its largest jump since July, while the FTSE 100 index recorded its biggest one-day drop since April.
As the Labour government's proposed measures to fill the fiscal gap performed a "U-turn," UK government bonds, the pound, and UK stocks all weakened together after European markets opened on Friday.
Thanks to the chaos of autumn 2022, markets are now characterizing this as the UK government approaching another "Truss Moment."
At the time of writing, the most affected UK 10-year government bond surged by over 10 basis points in early trading (Note: a rise in yield means bond prices are plunging), marking the most volatile moment for UK gilts since July. The pound, under pressure, weakened, hitting a nearly two-year low against the euro. The FTSE 100 index, which is closely watched by foreign investors, fell nearly 1.5%, marking its largest single-day drop since April.
As background, UK Chancellor Rachel Reeves is set to announce the Autumn Budget on November 26th. Facing a budget shortfall of nearly £20 billion, markets widely expected the Labour government to announce an increase in income tax. In a speech earlier this month, Reeves explicitly stated that she would make the "necessary choices" in the fiscal budget in the face of "more challenges from the world."
It is reported that one alternative is to lower the thresholds for different income tax rates, thereby keeping the nominal tax rates unchanged. Sources familiar with the briefing indicated that Reeves will also heavily rely on a so-called "buffet-style" approach, which involves raising rates for some highly targeted taxes, such as a new betting tax and higher rates on high-value properties.
