British financial assets were under pressure Friday on growing speculation that the Labour government has ditched plans to raise income taxes in a crucial budget at the end of the month.
Treasury chief Rachel Reeves was clearly considering becoming the first Chancellor of the Exchequer in 50 years to increase the basic rate of income tax. But widespread reports say she has decided against it, causing investors to grow nervous over the uncertain budget process.
By late afternoon London time, the pound was 0.4% lower at $1.3137. while the yield, or interest rate, on the British government’s benchmark 10-year bond was up 0.13 percentage point at 4.57%.
The increase in the yield is particularly illustrative as it shows that investors are demanding a bigger return on their bond holdings, a clear sign that they are fretting about the outlook for the U.K.’s public finances and the government’s ability to act boldly over fears higher income taxes would anger voters.
“This episode demonstrates the importance of the budget as a test of market confidence in the U.K. government’s fiscal approach,” said Deutsche Bank’s chief U.K. economist, Andrew Goodwin.
British financial assets were under pressure Friday on growing speculation that the Labour government has ditched plans to raise income taxes in a crucial budget at the end of the month.
Treasury chief Rachel Reeves was clearly considering becoming the first Chancellor of the Exchequer in 50 years to increase the basic rate of income tax. But widespread reports say she has decided against it, causing investors to grow nervous over the uncertain budget process.
By late afternoon London time, the pound was 0.4% lower at $1.3137. while the yield, or interest rate, on the British government’s benchmark 10-year bond was up 0.13 percentage point at 4.57%.
The increase in the yield is particularly illustrative as it shows that investors are demanding a bigger return on their bond holdings, a clear sign that they are fretting about the outlook for the U.K.’s public finances and the government’s ability to act boldly over fears higher income taxes would anger voters.
“This episode demonstrates the importance of the budget as a test of market confidence in the U.K. government’s fiscal approach,” said Deutsche Bank’s chief U.K. economist, Andrew Goodwin.
