Britain's new finance minister unveils first budget
Adds latest comments
LONDON, Oct 30 (Reuters) - Britain's new finance minister Rachel Reeves announced the biggest tax increases in three decades in her first budget, as she accused the Conservatives of leaving public services broken when they lost July's election after 14 years in power.
Reeves said she would raise taxes by 40 billion pounds a year - much of it falling on businesses - to cover a 22 billion-pound shortfall inherited by her Labour Party.
Britain's 10-year gilt yield, which had fallen ahead of the budget, hit a session low at around 4.21% and was last down around 10 bps on the day GB10YT=RR. Gilt yields have risen around 25 bps so far this month, partly on unease ahead of the budget.
Sterling trimmed its losses and was last trading at $1.2992 versus$1.2951 GBP=D3 just before Reeves started speaking. Against the euro, the pound was down 0.34%at 83.43 pence, versus 83.47 pence earlier EURGBP=D3.
London's blue-chip FTSE 100 stock index was down 0.3%on the day, trimming earlier falls,while the domestically-focused FTSE mid-250 index .FTMC jumped over 1%. It was flat when Reeves started speaking.
COMMENTS:
MICHAEL METCALFE, HEAD OF MACRO STRATEGY, STATE STREET GLOBAL MARKETS:
"Given that there had been a focus in markets and the media about fiscal sustainability, and also because the IMF is talking about this theme, it's interesting it's been a relatively positive reaction to the budget."
"The potentially difficult bits of the budget, because they were well flagged, have been priced in. There does seem to be a narrative about taking the deficit seriously so that is being viewed positively."
"This was always going to be difficult balancing act for gilts but it looks like we've got through that.
"So, what does this mean for the Bank of England? There might have been a question of whether there would be more stimulus and the fact that there isn't, seems to open the way up for rate cuts."
ABBY GLENNIE, MANAGER OF THE ABRDN UK SMALLER COMPANIES FUND, EDINBURGH:
"The government did not quite throw in the hand grenade for AIM (formerly the London Stock Exchange Alternative Investment Market) entrepreneurs and investors that many expected – and valuations of AIM companies ticked up immediately after the announcement, supported by buying demand."
"However, inheritance tax applied on AIM assets at 20% still makes investing in the market less attractive than previously."
KATHLEEN BROOKS, RESEARCH DIRECTOR, XTB, LONDON:
"Overall, this budget is not as bad as expected on the tax front. The capital gains tax increase is lower than expected, which suggests that Reeves’ bite is not as bad as feared."
"However, the unexceptional growth forecasts from the OBR, may be higher than the BOE’s rate, but it does not suggest that the UK’s economy will expanding at a rate anything like the level that the US is expanding, in the coming years."
"At this stage, massive tax rises have not spooked financial markets, and instead expectations that the budget deficit will shrink is having a mollifying effect on UK bonds."
LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO:
"The key to the Chancellor’s UK budget presentation is the reaction of the gilts. A significant decline in 10-year yield demonstrates that the budget passes the 'Truss test”, indicating the market, at the very least, sees the plan as reasonable."
"There can be discussions about the details, but the record tax rise of 40 billion pounds is probably a good sign that Labour’s return to power will not be marked by an irresponsible accounting of cost and revenues. Not yet anyway."
Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe; Editing by Amanda Cooper
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