The FTSE 100 plunged deeper into the red on Thursday after reports that Sir Keir Starmer and Chancellor Rachel Reeves had abandoned plans to raise income tax in the upcoming Budget, triggering fresh uncertainty over the Government’s fiscal strategy.
The UK’s blue-chip index has fallen 1.3% so far today, putting it on course for its worst session since the market slump that followed Donald Trump’s “Liberation Day” tariffs. The more domestically exposed FTSE 250 performed even worse, dropping 1.6%, marking its steepest decline in two months.
The sell-off intensified as UK government borrowing costs surged, with the yield on 10-year gilts — a key measure of the national debt’s servicing cost — jumping as much as 13 basis points to 4.57% in early trading. It later eased slightly to 4.51%, still up eight basis points on the day.
Lale Akoner, analyst at eToro, said the sharp market reaction reflected deeper concerns over fiscal discipline and the credibility of the Budget:
“Markets reacted sharply today following reports that the UK government may reverse plans to raise income tax. The volatility reflects a deeper concern: fiscal credibility is critical, not only for stabilising public finances but also for easing the cost-of-living crisis.”
The turmoil capped a volatile trading session as investors reassessed the UK’s fiscal outlook amid rising borrowing costs and a weakening pound.
