London slides and UK gilts sell as Reeves spooks market with tax U-turn
FTSE 100 (^FTSE) and European shares follow Wall Street and Asia lower as markets open on Friday; global risk aversion has weighed on markets and Rachel Reeves appeared to make a U-turn on plans to raise income tax.
London stocks fluctuated and British bond yields sold off as traders digested growing uncertainty about the direction of the UK government’s November 26 budget and the Chancellor backed away from plans to raise income tax. Financial Times report.
Following the report, ten-year and two-year British gold prices followed a fluctuating course. While the 10-year gold yield increased by 0.13% to 4.57%, the two-year gold yield increased by 0.06% to 3.82%.
Reeves canceled widely anticipated plans to raise basic and higher income tax rates, the report said. These plans were submitted to the Office for Budget Responsibility (OBR), the body that reviews government policy and makes forecasts, on Wednesday.
Read more: Budget 2025: Starmer and Reeves abandon plans to increase income tax
Instead of raising income taxes, Reeves is reportedly considering reducing the thresholds at which people pay income taxes at different rates without changing headline rates.
“The problem with not increasing income tax is that mechanically it’s the best lever – otherwise, if you’re faced with such a big black hole, you have to fiddle with a bunch of little things, pull all kinds of levers that mix up all sorts of things and probably squeeze growth even further, and you just have to come back for more,” said Neil Wilson, UK investor strategist at Saxo Markets.
“Also, the market thinks you lack credibility to fill the black hole and increase headroom.”
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FTSE 100 (^FTSE) fell 1.1% in early trading. Stocks dragging the index lower included banking stocks Lloyds (LLOY.L), Natwest (NWG.L) and Barclays (BARC.L) – each down around 4%.
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DAX (^GDAXI) in Germany fell 0.6%
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In Paris, CAC 40 (^FCHI) decreased by 0.5%
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Pan-European STOXX 600 (^STOXX) down 0.9%
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Sterling rose cautiously against the dollar (GBPUSD=X), hovering just below the $1.32 level.
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US stock futures are in the red
Our US team writes:
US stock futures fell Friday morning as investors failed to recover Sharpest sell-off in more than a month on Wall Street.
Contracts tied to the Dow Jones Industrial Average (YM=F) lost 0.2%, while the S&P 500 (ES=F) fell 0.3 percent. Nasdaq 100 Futures (NQ=F) fell roughly 0.4% as the week’s tech rout was thought to deepen.
The decline followed a negative session in US stocks. All major indexes recorded their steepest one-day declines in more than a month. The Dow (^DJI) erased record-breaking gains that took it above the 48,000 mark for the first time, while the Nasdaq Composite (^IXIC) led declines as heavyweights Nvidia (NVDA), Broadcom (AVGO), and Tesla (TSLA) retreated.
Uncertainty about the Fed’s next policy move has begun to weigh on sentiment, as the cheerful mood following the six-week government shutdown raises new questions about the state of the US economy. Investors currently see a roughly 52% chance of a quarter-point rate cut in December. almost 63% just a day ago and more than 95% a month ago.
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