UK Borrowing Costs Surge on Tax Hike Reversal

Britain's borrowing costs surged and the pound weakened on Friday after reports emerged that Chancellor Rachel Reeves has abandoned plans to increase income taxes in her upcoming budget. The decision, confirmed by government sources, comes less than two weeks before the November 26 fiscal statement and marks a reversal from earlier indications that such a hike might be necessary to address a substantial shortfall in public finances.

Yields on UK government bonds, known as gilts, jumped sharply in early trading, with 10-year yields rising as much as 12 basis points to around 4.5 percent and 30-year yields climbing up to 14 basis points to about 5.3 percent. The increases, which reflect falling bond prices, represent the largest daily moves since early July and undo recent gains in investor confidence. Shorter-term yields also rose, with two-year gilts up six basis points and five-year yields increasing eight basis points. The pound fell 0.5 percent against the US dollar to 1.32 before stabilizing, while London's FTSE 100 index dropped about one percent to 9,706.9, influenced partly by broader global concerns over technology stocks.

The U-turn stems from efforts to close an...