Markets react on second day of budget release as traders worry about some announcements

Government borrowing costs jumped on Friday morning, while British shares and the pound rose as markets digested news of billions of dollars in borrowing and tax hikes announced in the Budget.

Bye there was no panicthere were concerns about the scale of borrowing and changes in the Chancellor Rachel Reevesit’s voluntary borrowing rules.

There was a lull in the market closing on Friday. The interest rate on government borrowing was lower than at the open and fell from its high on Thursday afternoon.

The 10-year note rate was 4.45%, the benchmark for government borrowing costs, down from a high of 4.525% on Thursday and 4.485% on Friday morning.

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The pound also rose to buy $1.2955 or €1.1938 after yesterday’s biggest two-day fall in the trade-weighted pound in 18 months. The values are also higher than the vast majority of the last two years.

In the stock market, the benchmark Financial Times Stock Exchange (FTSE) index of 100 most valuable companies closed up 0.83%.

The larger, UK-focused FTSE 250 index also rose 0.45%.

While there was some reaction to the budget, which clearly affected UK borrowing costs, the reaction was much smaller than after the UK mini-budget.

Other factors at play

Many forces are influencing the markets, with the upcoming US elections on a knife’s edge, with decisions on interest rates in the UK and US to be made on Thursday.

Over the past month, the value of UK government debt has risen in line with the cost of US borrowing. Traders were weighing a possible second Trump presidency and the impact his policies could have, potentially fueling higher inflation.

But interest rates, or yields, on 10-year UK and US government bonds diverged on Wednesday afternoon after the budget was released.

At this point, the yield on British 10-year bonds, known as “gold bonds”, began to rise and, despite falling some, were trending upward.

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The budget is also affected by the likelihood of the Bank of England cutting interest rates. Although the probability of a fall is still high at 83%, it is lower than 94% yesterday on Wednesday morning.

A warmer welcome

Bond traders’ concerns were not felt across the business world, with Barclays chief executive Venkatakrishnan telling The Financial Times that Ms Reeves had done a “remarkable job”.

“I think they’ve done a remarkable job of balancing spending, borrowing and taxation to achieve the fundamental goal of growth,” he said.

He is one of the members of the Director General of the government’s national task force.

However, ratings agency Moody’s said borrowing plans announced in the budget were an “additional challenge.”

The new government has just committed to significantly increasing lending – around £140 billion more in the coming years – while tax hikes will lead to more lending. extra £40 billion a year.