major events
Prolonged uncertainty over fiscal policy is driving decision-making among UK businesses, consulting firms alixpartners has warned:
The taxation has become Britain’s own tariff, crippling trade with the same unpredictability as any trade barrier.
But headlines fixating on tax rates ignore the deeper issue.
The real damage to companies comes from prolonged uncertainty and speculation that paralyzes strategic planning and investment decisions.
CEOs are forced to behave like currency speculators, seeking to place high bets on when the ground changes. And recent history suggests that each budget cycle provides momentary clarity before the cycle begins again.
US stocks continue to fall as AI bubble selloff continues
AI overvaluation fears continue on Wall Street, with all major indices in the red at the start of US trading:
dow is down 434.03 points or 0.91% at 47,023.19
S&P 500 Down 67.49 points or 1% at 6,670.03
Nasdaq is down 321.58 points or 1.41% at 22,548.78
FTSE 100 falls 1.6% on fears over budget, AI bubble and Fed rates
Britain’s blue chip stock index has had a double impact of domestic and international shocks, FTSE 100 There has been a decline of about 2% so far this session.
While US stocks are struggling with overvaluation of AI tech firms and fears of a Fed rate delay, those concerns – which would normally spill over into UK stocks – have been heightened by today’s budget speculation.
As Dan Coatsworth, Head of Markets at AJ Bell notes:
Investors in the UK have their own issues to process, let alone whether there is a potential AI bubble waiting to burst.
The index is down 1.6% at about 9,647 points.
Investors are reportedly betting against it poundAmid concerns about how Reeves will fill the fiscal black hole by the time the budget comes up on Nov. 26.
Citing Bank of America analysts, Reuters reported that traders were accumulating short positions on the UK currency, which is now the second-worst performing major G10 currency in the past three months, having fallen 3% over the past three months. us dollar Up to around $1.315.
our political editor Pippa Creer has confirmed that sources are now ruling out a cut in the threshold to pay higher rates of income tax, and that we should expect “the income tax threshold to remain stable for the next two years, a tax on salary sacrifice schemes, the equalization of fuel duty for electric vehicles – plus a ‘smorgasbord’ of other measures.”
More on this on our politics live blog:
left leaning New Economics Foundation warning that – even if there is an improvement OBR The forecast is indicating a small fiscal black hole – the government will have to be “bold” to support the country after years of austerity and face the challenges of a growing population.
While the NEF said it was clear that some tax increases were inevitable, it warned against cutting the income tax threshold, saying the move would push people who were already struggling with low wages into paying taxes they could not afford.
Without further efforts to reduce living pressures, this can create problems for families.
Hannah Pecker, Deputy Chief Executive of NEF, said:
Any tax increases should be progressive starting with the wealthiest, not drive inflation and be earmarked for voter priorities such as the NHS and the cost of living.
Equalizing capital gains so that investment profits are taxed at the same rate as salaries would be an important first step.
But the government should also use this Budget to signal how it will boost long-term investment and productivity.
Reassessing its fiscal framework and the OBR’s role in scrutinizing it should be given priority, as well as working closely with the Bank of England.
US stock futures The state is pointing to a lack of market openness, fueling Thursday’s selloff, which was partly fueled by skepticism. fed Interest rate cut in December.
Global stock markets are also being influenced by jitters that AI stocks are overvalued, and a price correction is about to occur.
dow futures are down 0.58%
S&P 500 futures are down 0.9%
nasdaq futures are down 1.38%
Richard Hunter, head of markets at Interactive Investor, says:
Investors are shifting uneasily in their seats as a surge of AI spending, the success of which won’t be clear for some time, has driven valuations higher due to continued buying interest.
The Nasdaq bore the brunt of the latest uncertainty, led by declines in Nvidia, Alphabet and most recently market darling Palantir Technologies. Additionally, there was a reminder that sentiment is weak as Disney shares fell nearly 8% after mixed fourth-quarter data.
At the same time, Hunter says, there are concerns that – even if the US government shutdown ends – the lack of economic data caused by the shutdown (which has “blindsided” the Federal Reserve) may not be delivered in time for the Fed’s next meeting in December.
Hunter says:
Thus, investors assumed that the Fed may therefore decide to play safe and keep interest rates on hold until full visibility is restored.
Comments from several Fed members that monetary policy should remain restrictive led to a decline in the market consensus for a cut, which had dropped from about a 50/50 probability just two weeks ago.
Redbird Capital abandons its £500 million bid for the Telegraph newspaper
Mark Sweeney
BREAKING: Consortium led redbird capitaL has abandoned its £500 million bid for WireThrowing the future of the daily and Sunday titles into further uncertainty.
Founded by private equity group gerry cardinale The Telegraph newsroom has come under intense attack in recent weeks, with colleagues including former editor Charles Moore and ex-Spectator chief Fraser Nelson – publishing a number of pieces investigating its links with China.
Lisa NandyThe Culture Secretary was expected to announce a decision shortly on whether the bid should be allowed to proceed and also whether it should be subject to investigation by the media regulator, Ofcom, and the competition watchdog.
10 years And 20 year gilt yield are rising again, as investors try to determine how confident they are about the Labor government’s ability to raise enough money to provide some fiscal certainty and long-term stability.
20 year gilt yield Up 0.125 percentage points at 5.233%.
This is the highest level since mid-October.
Berenberg’s estimates suggest the UK government needs to raise £30 billion, or about 1% of GDP, in the November 26 budget to meet its fiscal target to cover all day-to-day spending with tax revenues by 2029-2030.
Berenberg points out that each percentage increase in income tax rates would raise more than £10.5 billion by the end of the target year.
However, an increase of 2 percentage points would be a “simple, relatively efficient and front-loaded mechanism with which over £20 billion could be raised.” Andrew Wishart, senior UK economist at Berenberg They say.
But to avoid breaking the Labor Party manifesto pledge “not to raise higher or additional rates of National Insurance, basic, income tax or VAT”, the government is said to be considering this instead. Lower the threshold at which income taxes rise From 20% to 40%.
But reducing the threshold from £50,270 a year to £46,000 would still hit the public finances £6bn less How much can it raise through income tax increases by 2029-30,” thus Necessary additional increases in small taxes, too,” Berenberg says.
Wishart explains:
As a result, it is more likely that the government will have to raise taxes (or cut spending) again in the future, resulting in even more policy uncertainty.
He says:
A shorter and more back-loaded fiscal tightening would therefore damage the government’s fiscal credibility and limit the extent to which the Bank of England can lower interest rates in 2026.
This is the straightforward economic explanation for the 7bp rise in 10-year gilt yields to 4.50% today.
This U-turn also reflects a lack of political capacity which may have led investors to raise the possibility of a change in leadership of the Labor Party and government.
The risk is that Labor will replace Keir Starmer and Rachel Reeves with a pair further to the left on the economic policy spectrum and less committed to fiscal stability.
UK stock indexes still suffering FTSE 100 Losing further ground and trading down 1.3%.
Only three companies are trading in positive territory, namely banks lloyds And natwest The biggest declines still are each, down about 3.3%.
Analysts expect further softening in bond prices as investors digest the flood of news on Reeves’ budget plans.
Hal Cook, senior investment analyst at Hargreaves Lansdown, says:
As is often the case with quick reactions to surprising news, it is likely that these moves are over-reactions and yields are certainly likely to move lower from here.
Just because Labor is no longer planning to raise income taxes, we don’t yet know what they might plan to do instead.
Government bond markets certainly have the power to keep government budgets in check, as we saw in the UK with the truce mini-budget in 2022 and in the US around Liberation Day earlier this year. watch this space.
Kiran Stacey
Full story: UK borrowing costs rise after Reeves’ income tax U-turn spooked markets
Borrowing costs for the UK have risen and the pound has fallen after the Chancellor’s extraordinary last-minute decision to scrap plans to raise taxes in the upcoming Budget.
Interest rates on government bonds rose more than 10 basis points in early trading, putting them on track for their worst day since July 2, when investors responded to Rachel Reeves’ tearful appearance in the House of Commons chamber. Meanwhile, the pound fell 0.5% against the dollar.
The market reaction came as government sources confirmed Reeves has abandoned plans to raise income taxes to help plug the nearly £30bn budget shortfall.
The U-turn came despite weeks of warnings from Labor MPs and the wider public that the Chancellor might have to break his manifesto promise on tax to avoid a market meltdown.
Reeves has been working for weeks on a plan to raise income taxes in the budget, despite promising not to do so before the election.
The Chancellor has also invited external experts to brief Labor backbenchers on the difficult decisions they may have to defend.
Read more: