UK bonds sold off as chancellor Kwasi Kwarteng unveiled a £45bn tax cut package in today’s mini-budget. Yields on 10-year gilts shot up to 3.7 per cent on the announcement, up from 3.5 per cent before the announcement and 2.6 per cent a month ago. According to Refinitiv data, this marks the sharpest increase in long-term borrowing costs since 1998. The pound fell close to the $1.10 mark against the dollar, a 2 per cent drop on the day. Equity markets were also under pressure, with the FTSE 100 falling 2.2 per cent, though this is in keeping with falls seen elsewhere in Europe.
The fiscal statement represented the biggest round of tax cuts since 1972, and saw the chancellor announce a series of policies designed to turn the UK’s “vicious cycle of stagnation into a virtuous cycle of growth”.
Borrowing will be increased to pay for the cuts, and the government anticipates that it will raise £234bn from gilt issuance in the current financial year, up from a previous figure of £161bn.