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U.K. bond yields continued to drop on Friday, on expectations the U.K. government will further backtrack on its tax cut plans as Chancellor of the Exchequer Kwasi Kwarteng was forced out of office.
Kwarteng, in a statement, acknowledged the poor reception to his mini budget, saying “the economic environment has changed rapidly.”
The yield on the 30 year gilt
TMBMKGB-30Y,
— which was high as 5.1% as recently as Wednesday — fell 17 basis points to 4.37%.
The yield on the 10-year gilt
TMBMKGB-10Y,
dropped 21 basis points to 3.98%. Yields move in the opposite direction to prices.
The pound
GBPUSD,
fetched $1.1196, down from $1.1331 on Thursday.
Speculation of further U-turns has centered around corporate tax cuts in particular. Other tax cuts that could be reversed include the planned personal income-tax reduction to 19% from 20%.
The government has already relented on a planned cut for those making above £150,000. Financial markets gyrated after Kwarteng announced its mini-budget, which called for some £45 billion in tax cuts on top of capping energy prices. Investec Securities estimates the total cost of the stimulus to be on the order of £150 billion.
A medium-term fiscal plan, as well as an independent forecast from the Office of Budget Responsibliitiy, is due at the end of October.
The Bank of England’s emergency bond-buying plan — designed to ease tensions for pension funds — is due to expire on Friday.
The central bank says it’s purchased £17.8 billion in securities.
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