Financial Market Worries Over UK Budget Appear To Ease

Concerns about the UK’s recent tax-raising budget within financial markets have appeared to settle, as interest rates on British debt stabilized and the pound gained against most currencies, Pan Pylas reported for the Associated Press (AP).

British financial assets faced some volatility, with risk-averse investors selling both government bonds and the pound subsequent to the first budget presented by a Labour government in 14 years.

Following the first budget presented by a Labour government in 14 years, British financial assets faced some volatility, with risk-averse investors selling both government bonds and the pound.

The budget included a £40 billion ($52 billion) tax hike, the largest in over 30 years, along with increased borrowing and spending — a combination that initially unsettled some investors.

Certain analysts expressed concerns that the budget’s inflationary potential might prompt the Bank of England to reduce interest rates at a slower pace than previously expected.

While the Bank of England is still anticipated to cut its main interest rate by a quarter-point to 4.75% next week, markets now expect fewer reductions next year.

Other analysts suggested that if economic growth in the UK remains sluggish, additional fiscal measures may be necessary to strengthen public finances.

The Office for Budget Responsibility noted that the budget’s measures would likely have minimal impact on boosting growth in the years to come. Last week, the yield on the UK’s 10-year bonds remained steady at 4.45%, following slight increases since Treasury Chief Rachel Reeves presented the budget.