Chancellor Rachel Reeves has reportedly abandoned plans to raise income tax on November 26.
Bond and stock markets are reflecting the latest pre-Budget uncertainty, including the impact on Bank of England interest rate cuts.
The FTSE 100 is sharply lower after Wall Street benchmarks came under pressure last night.
FTSE 100 Live Friday
- Tax u-turn fuels uncertainty
- Landsec lifts guidance
- DFS sofa orders rise
Market update: FTSE 100 down 1% as banks and builders weaken
10:05 , Graeme EvansThe shares of Britain’s major lenders and housebuilders fell sharply today as reports of a u-turn on income tax rises added to pressure on the FTSE 100 index.
Lloyds Banking Group fell 3p to 91.1p and NatWest dropped 18.8p to 604.4p as fears of a tax raid on the sector re-surfaced in the wake of the speculation.
Long-term gilt yields rose by as much as 14 basis points amid the pre-Budget uncertainty as expectations for more Bank of England rate cuts also cooled.
Hargreaves Lansdown analyst Hal Cook said: “Increases in tax are deemed to be a big part of the plan to tackle the deficit. So, the news that the likely income tax rises have been scrapped hasn’t gone down well with gilt investors.”
Charlotte Kennedy, a chartered financial planner at Rathbones, added: “The government still has a multi-billion-pound fiscal black hole to plug, and the reported move could put other unsavoury tax changes back on the table.”
Housebuilders and interest rate-sensitive stocks experienced renewed market jitters, with Berkeley down 104p to 3860p and Barratt Redrow off 9.8p to 376.3p.
Land Securities fell 22p to 625p, even though it lifted full-year guidance and chief executive Mark Allan reported “clear positive momentum across every part of our business”.
Other fallers included financial services firms Phoenix Group and M&G following declines of 2.5%, while B&Q owner Kingfisher dipped 2% or 7.6p to 300.4p.
The Budget jitters came amid a weak global markets backdrop after the S&P 500 index fell 1.7% on reduced expectations for a December interest cut.
The Nikkei 225 and Hang Seng index fell by 1.8% while the FTSE 100 index lost 118.49 points to 9689.19 - its second successive 1% fall since Wednesday’s record close.
Bond yields rise on income tax u-turn reports
09:31 , Graeme EvansSpeculation the Chancellor has scrapped plans to raise income tax sparked a sell-off in UK government bonds amid fears over unfunded spending pledges.
Yields on 30-year UK government bonds, also known as gilts, jumped as much as 14 basis points in early trading, and the yield on 10-year gilts lifted 12 basis points – rising the most since July.
The yield moves counter to the price of bonds, meaning that prices fall when yields rise.
Yields later eased back a little, with 30-year gilt yields standing seven basis points higher at 5.3% and 10-year gilt yields up six basis points at 4.5%.
DFS Furniture shrugs off Budget uncertainty
08:58 , Graeme EvansDFS Furniture has forecast “strong” profit growth despite a subdued market and consumer uncertainty ahead of this month’s Budget.
The sofa retailer said orders rose in the first 19 weeks of its financial year, while “self-help” cost-cutting measures offset inflation and higher staff costs.
The firm stuck to guidance for underlying full-year pre-tax profits of £40.6 million, up from £30.2 million in the year to June 29.
Chief executive Tim Stacey said: “By continuing to execute our strategy we have made a strong start to the year.”
Shares lifted 1.7p to 160.2p following the AGM update.
FTSE 100 down 1%, Lloyds and NatWest under pressure
08:10 , Graeme EvansThe FTSE 100 index has fallen 1% or 98.34 points to 9709.34, with Lloyds and NatWest shares down 3% amid a fresh bout of Budget uncertainty.
Housebuilders Persimmon and Berkeley also dropped by 3% and 4% respectively.
Property landlord Land Securities fell 4% or 27.3p top 619.7p, despite lifting guidance in half-year results.
Other stocks under pressure included Rolls-Royce, which dropped 24.5p to 1096p, and Legal & General, down 5.4p to 235.7p.
The UK’s 10-year bond yield, which has fallen recently on the back of lower interest rate expectations, rose by more than 2% to 4.54%.
Markets under pressure after US reverse
07:52 , Graeme EvansThe Government’s reported income tax u-turn has added to stock market jitters after US markets suffered their sharpest fall in over a month.
IG Index futures trading now points to the FTSE 100 index opening about 84 points or 0.9% lower.
Wall Street markets yesterday came under pressure after hawkish comments from policymakers pushed December rate-cut odds to near 50%.
Nvidia shares fell 4% and Tesla fell by 7% as the S&P 500 index lost 1.7%.
Income tax u-turn fuels markets uncertainty
07:33 , Graeme EvansBond markets are in focus this morning after the Financial Times reported that Chancellor Rachel Reeves has abandoned plans to raise income tax.
It is thought that an alternative could be to reduce income tax thresholds while keeping tax rates the same, which could raise billions of pounds for the Treasury.
Peel Hunt chief economist Kallum Pickering said income tax increases could have opened the door for the Bank of England to become much more aggressive with rate cuts next year.
He said: “Reducing tax thresholds may have the same effect. But bond markets are already skittish and may wobble on the news of the apparent U-turn.”
Rate cut expectations meant the UK’s 10-year gilt yield last night stood at 4.4%, near the lowest level since the end of last year. The pound has fallen 0.3% and the FTSE 100 is now seen opening about 0.8% lower.
Pickering added: “If Reeves stays clear of raising income tax rates or lowering the thresholds at which they are paid, her remaining option would likely be to opt for a haphazard patchwork of smaller anti-growth tax increases.
“That would be a bad outcome. It would add to uncertainty, further damage the government’s already tarnished credibility, and complicate any Bank of England judgement to potentially offset tax rises with rate cuts.”
Land Securities lifts guidance amid positive momentum
07:10 , Graeme EvansRetail and central London offices landlord Land Securities today bolstered guidance for the financial year.
Like-for-like net rental income in the year to March is now expected to grow by between 4% and 5%, up from initial 3-4% guidance.
In addition, earnings per share growth is seen at the top end of its 2-4% guidance.
Announcing half-year results, chief executive Mark Allan said the company was benefiting from its “proactive portfolio repositioning” of recent years.
He added: "We continue to see clear positive momentum across every part of our business, notwithstanding the wider economic environment.”
The group said earnings per share rose by 3.2% over the past half-year on the back of a 5.2% rise in like-for-like income and a boost from reductions in overhead costs.
However, the Bluewater majority owner also revealed pre-tax profits slumped to £98 million for the six months to September 30, compared with £243 million a year earlier, amid losses linked to the sale of assets.
FTSE 100 seen lower, Nasdaq falls more than 2%
06:58 , Graeme EvansThe FTSE 100 index is set to continue its retreat from Wednesday’s record high, with London’s top flight seen opening about 0.4% lower.
Soft economic data, mixed earnings and a batch of index heavyweights going ex-dividend meant the index fell 1.1% at 9807.68 on Thursday.
The downturn comes amid weaker trading on Wall Street after the Dow Jones Industrial Average fell 1.7% from the previous session’s all-time high close.
The S&P 500 index last night closed 1.7% lower and the tech-focused Nasdaq Composite tumbled by 2.3%.
Asia benchmarks followed Wall Street’s lead this morning as the Nikkei 225 stood 1.8% lower and the Hang Seng index fell 1.6%%. Gold is higher at $4170 an ounce.
