Yields on UK gilts rose to their highest level in five months as uncertain investors digested Reeves’ Budget, an event that marked the largest tax increase in over thirty years.
Britain's 10-year gilt yield closed 3.5 basis points higher on Wednesday, reversing an earlier fall as markets adjusted to higher borrowing figures than anticipated.
Reeves, however, did not drive an immediate sell-off as seen in the 2022 ‘mini-Budget’, in part down to revealing many of her policies in advance, to allow markets time to absorb the information.
In equity markets, the blue-chip FTSE 100 finished 0.73 per cent lower, closing at 8,159.63, its lowest since August.
But the FTSE 250 and the AIM 100 rallied – both of which are more domestically sensitive than the multinational headline index – indicating that the Budget has provided some certainty to smaller companies.
Indeed the FTSE 250 climbed as high as 1.7 per cent higher during her speech, before paring back gains to end 0.35 per cent higher at close of day.
The AIM index rose over 4 per cent, buoyed by the news that its companies will maintain its 50 per cent relief on inheritance tax, rather than being scrapped in its entirety as first feared.
The sterling fell slightly against the dollar to land around $1.30, but this can also be attributed to the US posting better employment figures than expected.
Reeves’ speech was clear in its aim: “The only way to drive economic growth is to invest, invest, invest.”
This mantra has been largely funded by increasing the national insurance contributions of employers, not employees, to 15 per cent from 13.8 per cent – indicating that the brunt of the Budget will be carried by corporations first.
Targeting businesses could see higher costs passed down in lower wages and a hiring slowdown for workers, or push more people into self-employment.
