Investors are in panic over a potential “repeat” of the “Truss era” market chaos ahead of Chancellor Rachel Reeves’ Autumn Budget on October 30.
The stock market plummeted and mortgage rates skyrocketed following Prime Minister Liz Truss’ infamous “mini Budget” in September 2022 with many analysts concerned Reeves’ upcoming statement will illicit a similar reaction.
This warning comes after the Chancellor submitted her tax and spending agenda to the Office for Budget Responsibility (OBR) earlier today.
Inheritance tax (IHT), capital gains tax (CGT) and allowance reform are understood to being considered as the new Labour Government attempts to plug the £22billion “black hole” in the public finances.
Ahead of the upcoming Budget, UK gilt yield have jumped considerably from 3.75 per cent to around the 4.2 per cent level.
Gilt yields are widely considered to be a useful bellwether for investor confidence with many appearing increasingly anxious ahead of the October 30 date.
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Stock markets plunged across the world following Truss Budget
Reuters
Nigel Green, CEO of deVere Group, outlined the parallels between this month’s Budget and the one that toppled Truss’ Government.
He shared: “This rise, a clear signal that investors are offloading government debt, indicates growing concerns that the Chancellor may prioritise fiscal stimulus over long-term sustainability.
“The response recalls the shockwaves from Truss’s controversial fiscal plan in September 2022, which triggered a massive sell-off of UK gilts, rattling markets and forcing emergency interventions.”
According to the chief executive, worry over Rachel Reeves’ fiscal plans appear in the currency markets also.
“Sterling, which had been gaining ground earlier in the year, has seen its rally reverse, slipping against both the dollar and euro,” Green added.
“Currency traders are increasingly factoring in the potential for increased borrowing, which could put further pressure on the pound in the weeks ahead.”
Over September, consumer confidence dropped significantly across the UK, especially among pensioners.
Despite inflation easing to around two per cent, interest rates remain a difficult hurdle for businesses and households to navigate.
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The former Prime Minister is infamous for his fiscal policies
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The group’s CEO is urging Reeves to appease both consumers and market in any decisions she makes.
Green shared: “The need for public investment is clear, but so too is the requirement to maintain market confidence,” notes Nigel Green.
“Markets are extremely sensitive to any signal that borrowing could rise significantly.
“The rise in gilt yields shows that investors are already pricing in the possibility of increased borrowing, and if Reeves doesn’t tread carefully, we could see a repeat, albeit to a lesser degree, of the panic that followed Truss’s mini-budget.”