UK borrowing costs up after markets spooked by Reeves's income tax U-turn

"Britain's borrowing costs have jumped while the pound has dropped after the chancellor's extraordinary last-minute decision to ditch tax-raising plans in the upcoming budget. Interest rates on government bonds rose by more than 10 basis points in early trading, putting them on track for their worst day since 2 July, when investors responded to a tearful appearance by Rachel Reeves in the House of Commons chamber. The pound, meanwhile, dropped 0.5% against the dollar."

"Kathleen Brooks, a research director at the brokerage XTB, said: Bond market volatility is not what the chancellor wants to see with less than two weeks to go before the budget. Essentially, the bond market is warning the chancellor that she cannot merely tax the rich' to fund her lavish spending pledges. Either she broadens the tax base, or she cuts spending."

"Reeves has been working for weeks on plans to raise income taxes at the budget, despite having promised not to do so before the election. The chancellor has even invited external experts to brief Labour backbenchers on the difficult decisions they are likely to have to defend. She told BBC Radio 5 Live on Monday: It would, of course, be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending."

Britain's borrowing costs rose and the pound weakened after the chancellor abandoned planned income tax increases ahead of the budget. Government bond yields climbed by more than 10 basis points, putting them on course for their worst day since 2 July following a market reaction to a tearful Commons appearance. The pound fell about 0.5% versus the dollar. Officials said the U-turn followed improved Office for Budget Responsibility forecasts and occurred amid political turbulence as the prime minister's allies sought to shore up his leadership. Market commentary warned that relying solely on taxing the wealthy is insufficient, forcing a choice between broadening the tax base or cutting spending. The chancellor had prepared tax plans despite manifesto commitments and briefed backbenchers on difficult options.

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