Markets react on day after Budget – as traders worried about some announcements

The cost of government borrowing rose on Friday morning, while UK shares and the pound rose as markets digested news of billions in borrowing and tax hikes announced in the budget.

while there was no panicthere were concerns about the extent of borrowing and changes to the Chancellor Rachel Reevesit’s self-imposed loan rules.

On Friday, when the market closed, there was a calm. The government borrowing rate was lower than the open and down from Thursday afternoon’s high.

It stood at 4.45% on the 10-year bond – the benchmark for government borrowing costs, down from highs of 4.525% on Thursday and 4.485% on Friday morning.

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

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

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

Although there was a clear reaction to the budget, which uniquely affected UK borrowing costs, the response is much smaller than after the UK mini-budget.

Other factors at play

Many forces affect the markets with the emergence US elections on the knife edge and interest rate decisions in both the UK and the US will come on Thursday.

Over the past month, UK government debt costs have risen in line with US borrowing costs. Traders were pricing in a possible second Trump presidency and the impact his potentially inflationary policies could have.

But the interest rate, or yield, on 10-year government bonds in Britain and the US moved away from each other on Wednesday afternoon after the budget.

At that time, the yield on 10-year British bonds, known as gilts, began to rise and, despite some dips, has been on an upward trend.

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Also affected by the budget is the chance of an interest rate cut by the Bank of England. While the probability of a drop is still high at 83%, it is down from a 94% chance yesterday, Wednesday morning.

A warmer welcome

Bond traders’ concern was not felt in the business world, as Barclays chief executive CS Venkatakrishnan told The Financial Times Ms Reeves had done an “admirable job”.

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

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

However, credit rating agency Moody’s said the borrowing plans announced in the budget posed an “additional challenge”.

The new government has just committed to much higher borrowing – around £140 billion more over the next few years, while tax hike measures will bring a An extra £40 billion a year.