Markets are not impressed with the U-turn on corporation tax

THE pound and UK Government bonds came back under pressure despite the Prime Minister’s decision to reverse corporation tax plans as the financial markets seek further action.

It came after a turbulent day which saw Liz Truss oust Chancellor Kwasi Kwarteng after a 38-day spell as Chancellor, which was marked by severe volatility across the financial markets.

Trading in the pound and gilts, UK government bonds, became more positive early yesterday after reports that parts of the Government’s mini-budget announcement would be scrapped.

The Chancellor’s unfunded tax-cutting plans in the mini-budget last month led to a surge in yields on gilts.

Yesterday, the Prime Minister confirmed that the Government will now reverse on over £18 billion worth of spending commitments from the minibudget, by reversing her policy to axe the planned rise in corporation tax from 19% to 25%.

Sterling had pared back some of its

early losses after the Chancellor’s exit was confirmed.

However, the pound fell back after a brief press conference which announced the reversal on corporation tax as the only major change to fiscal policy.

Liz Truss reaffirmed plans to outline the Government’s fiscal strategy on October 31, alongside projection by the Office for Budget Responsibility.

After 3pm yesterday, the pound swung 1.2% lower, at 1.119 against the

US dollar.

Meanwhile, the update also sparked another jump in gilt yields, which rise as bond prices fall.

The yield on 30-year UK Government bonds increased by 2.86%, or 0.13 percentage points, to 4.7%, representing an increase in the cost of state borrowing.

Gilts had seen yields surge as high as 5.1% after the Chancellor’s mini-budget was announced in September, causing particular distress for many UK pension funds.