The FTSE 100 has taken a turn for the worse following the details of Rachel Reeves’ Budget being leaked.
The FTSE 100 has plummeted after details of Rachel Reeves’ Budget were accidentally leaked by the Office for Budget Responsibility (OBR). The early forecast published early in a major blunder suggested that the UK’s economy will grow more slowly than predicted over the next four years and confirmed the Chancellor will “raise taxes by amounts rising to £26 billion in 2029-30, through freezing personal tax thresholds and a host of smaller measures”.
The FTSE 100 dropped sharply by 0.033%, falling to 9,606.25 following the leak shortly before 12pm, and fell further by 0.16% by 12:30pm. The pound also weakened in response, down 0.2% at $1.31 and 0.3% lower at €1.13. It came after the index moved into the green on opening on Wednesday as banking stocks gave it a lift amid reports that the sector would be spared a tax hit in Ms Reeves’s Budget, closing up 74.62 points, 0.8%, at 9,609.53.
Chancellor Rachel Reeves (Image: Getty)
The FTSE 100 has dropped since the Budget (file image) (Image: Getty)
However, the FTSE 100 has taken a definite turn for the worse since the forecast was released, including news of a rise in debt from 95% of GDP this year to 96.1% by the end of the decade, and a downgrading of growth in 2026 from 1.9% to 1.4%.
The Budget can impact trading in the financial markets, as has significant speculation about potential policy decisions.
Typically, the value of the pound and the price of gilts – government bonds – are the most likely to be influenced by budget policy.
Government borrowing costs jumped higher after the early forecast release, with 30-year gilt yields jumping as much as seven basis points higher to 5.39% and rising three basis points for 10 year bonds, at 4.53%.
Gilt yields, which rise as prices fall, ticked higher earlier this week but remained significantly lower than earlier this year as borrowing costs drifted lower amid lower interest rates.
Both the pound and gilt prices tend to react positively to cautious spending commitments and limited tax changes, particularly if they believe tax policy is likely to hamper economic growth or wider investment.
The FTSE 100 and other domestic equity indexes do not tend to be directly impacted by changes in domestic policy, although they can be influenced by fluctuations in the pound.
