Markets have taken a step back from their initially positive response to the Budget as investors take in the gloomy growth downgrades for the later years of the UK parliament.
There was general relief immediately after the statement that the Chancellor Rachel Reeves will end up with a £22bn fiscal headroom.
Sterling climbed to $1.33 against the dollar and 10-year bond yields fell to 4.43%.
However, today the pound retreated to $1.32 and gilt yields rose to 4.47%.
Prem Raja, head of trading floor at Currencies 4 You, said the markets are not so positive now they have digested the Budget.
He added: “Chancellor Reeves’ Budget initially sparked a relief rally in the City, but less than 24 hours later, that optimism is evaporating. Yesterday, markets cheered the surprise £22bn fiscal headroom – far exceeding the expected £9bn – which reassured investors that the government wouldn’t need to borrow recklessly.
“Thursday morning has brought a sober reality check. Why the reversal? Investors are looking past the headline figures at the OBR’s gloomy growth downgrades for the later years of the parliament.
“The market now realises that Reeves’ ‘stability’ relies on painful tax hikes delayed until 2028. While she avoided a market meltdown, the retreating pound suggests the City is sceptical that this low-growth plan is sustainable long-term.”
Tony Redondo, Founder at Cosmos Currency Exchange, said concerns are mounting.
“The Budget’s £70bn tax increase across two budgets pushes the tax burden to a post-war peak of 38.3% of GDP, more than any modern Chancellor. Concerns are mounting that these measures could push the sluggish economy into outright recession once they impact the real economy.”
The FTSE 100 which rose strongly yesterday was trading at 17 points lower at 9,674.82 at mid-day.
