Bond markets wavered last week after Reeves' income tax U-turn unsettled investors
A U-turn by chancellor Rachel Reeves on a planned income tax hike roiled bond markets last week – and investors are expressing fresh doubts about doing business in the UK as the government’s November 26 budget looms.
On Monday, commercial real estate giant Sirius’s chief executive officer Andrew Coombs said the company “will not invest a penny in the UK” until the results of next May’s elections are known, highlighting fears that political instability could spark further bond jitters.
Bond yields jumped after Reeves walked back on a reported plan to increase income tax last week, a change of heart apparently spurred by official forecasts showing a smaller-than-expected government deficit.
But investors are still sceptical Reeves will be able to make up that shortfall in next week’s announcement.
And Coombs, whose company has a heavy presence in both the UK and Germany, said he “pities” firms restricted to just the UK, indicating a pivot to a more German-centric focus amid the continuing political uncertainty.
At the weekend, newspapers reported financial markets and investors were rapidly losing faith in the long-awaited Reeves budget, a crucial one for the UK economy and the Labour government as it bids to arrest a months-long slide in opinion polls.
That followed the biggest jump in the cost of UK government borrowing in a single day since July, with 10-year government bond yields rising to 4.575%, and the pound dipping in value against the US dollar.
This week, Reeves was rumoured to be mulling a “holiday tax” on Airbnbs and other properties, a move that would give mayors the ability to introduce levies on tourists for overnight stays.
And broker confidence in the mortgage market is also slipping in part due to concerns over the budget, according to the Intermediary Mortgage Lenders Association’s (IMLA’s) latest Mortgage Market Tracker.
Confidence among brokers fell throughout the third quarter, that poll showed, with September marking its most noteworthy Q3 decline.
