Prolonged uncertainty around fiscal policy is causing decision paralysis at UK business, consultancy firm AlixPartners has warned:<\/p>\n
Taxation has become the UK\u2019s own tariff, undermining business with the same unpredictability as any trade barrier.<\/p>\n
But headlines fixating on tax rates miss the deeper issue.<\/p>\n
The real damage for companies comes from prolonged uncertainty and speculation that paralyse strategic planning and investment decisions.<\/p>\n
CEOs are pushed into behaving like currency speculators, making high stakes calls on shifting ground. And recent history shows that each budget provides fleeting clarity before the cycle begins again.<\/p>\n
Share<\/a>US stocks extend fall as AI bubble sell-off continues<\/p>\n Fears over AI over-valuations continue to hit Wall Street, with major indexes all falling into the red at the start of US trading:<\/p>\n Dow is down 434.03 points or 0.91% at 47,023.19<\/p>\n S&P 500 is down 67.49 points or 1% at 6,670.03<\/p>\n Nasdaq is down 321.58 points or 1.41% at 22,548.78<\/p>\n Share<\/a><\/p>\n Updated at\u00a009.39 EST<\/p>\n FTSE 100 falls 1.6% as fears over budget, AI bubble and Fed rates loom<\/p>\n The UK\u2019s blue chip stock index has been hit with a double-whammy of domestic and international jitters, sending the FTSE 100 down nearly 2% so far this session.<\/p>\n While US stocks continue to take a battering over fears of an overvaluation of AI tech firms, and a delayed Fed rate cut, those worries \u2013 which would usually spillover into UK stocks anyway \u2013 have been compounded by today\u2019s budget speculation.<\/p>\n As Dan Coatsworth, head of markets at AJ Bell notes:<\/p>\n Investors in the UK have their own issues to process, let alone whether there is a potential AI bubble waiting to burst.<\/p>\n The index is down 1.6% at around 9,647 points.<\/p>\n The FTSE 100 has been losing ground on Friday. Photograph: Refinitiv\/ReutersShare<\/a><\/p>\n Investors are reportedly piling bets against the pound, amid concerns over how Reeves will fill the fiscal black hole by the time the budget comes around on 26 November.<\/p>\n Citing analysts from Bank of America, Reuters is reporting that traders are amassing short positions on the UK currency, which is now the second worst performing major G10 currency over the past three months, having dropped 3% against the US dollar to about $1.315.<\/p>\n The pound is now the second worst performing major G10 currency over the past three months. Photograph: Refinitiv\/ReutersShare<\/a><\/p>\n Updated at\u00a009.12 EST<\/p>\n Our political editor Pippa Crear has confirmed that sources are now ruling out cutting the thresholds for paying higher rates of income tax, and that we should expect \u201cincome tax thresholds to be frozen for another two years, taxes on salary sacrifice schemes, fuel duty equivalent for electric vehicles – plus \u2018smorgasbord\u2019 of other measures.\u201d<\/p>\n More on that over at our politics live blog:<\/p>\n Share<\/a><\/p>\n Updated at\u00a009.12 EST<\/p>\n The left-leaning New Economics<\/a> Foundation is warning that \u2013 regardless of whether there is an improved OBR forecast signalling a smaller fiscal black hole \u2013 the government has to be \u201cbold\u201d to support the country after years of austerity and meet the challenges of an aging population.<\/p>\n While the NEF said it was clear that some tax hikes were inevitable, it warned against cutting income tax thresholds, saying the move would drag people who were already struggling with low wages, into paying taxes they can\u2019t afford.<\/p>\n That could spell trouble for families without further efforts to ease cost of living pressures.<\/p>\n Hannah Peaker, the NEF\u2019s deputy chief executive, said:<\/p>\n Any tax rise should be progressive by starting with the wealthiest, not push up inflation and be earmarked for voter priorities like the NHS and the cost of living.<\/p>\n Equalising capital gains so profits from investment are taxed at the same rate as wages would be an important first step.<\/p>\n But the government must also use this budget to signal how it will boost long-term investment and productivity.<\/p>\n Reassessing its fiscal framework and the OBR\u2019s role in examining it has to be a priority, as well as closer working with the Bank of England.<\/p>\n Share<\/a><\/p>\n Updated at\u00a008.34 EST<\/p>\n US stock futures are pointing to lower market open state-side, extending Thursday\u2019s sell-off which was sparked in part by doubts over a Fed interest rate cut in December.<\/p>\n Global stock markets are also being hit by jitters that AI stocks have been overvalued, and are due a price correction.<\/p>\n Dow futures are down 0.58%<\/p>\n S&P 500 futures are down 0.9%<\/p>\n Nasdaq futures are down 1.38%<\/p>\n Richard Hunter, head of markets at interactive investor, says: <\/p>\n Investors have been shuffling uncomfortably in their seats with AI spending going into overdrive, the success of which will not become apparent for some time, and the stretched valuations which have resulted from the relentless buying interest.<\/p>\n The Nasdaq bore the brunt of the latest uncertainty, led by declines in the likes of Nvidia, Alphabet and most recent market darling Palantir Technologies. In addition, there was also a reminder that sentiment is skittish as Disney shares fell by almost 8% following a mixed set of fourth quarter numbers.<\/p>\n At the same time, Hunter says, there are concerns that \u2013 despite the US government shutdown having ended \u2013 the lack of economic data caused by the shutdown (which has eft the Federal Reserve \u201cdealing blind\u201d) may not be delivered in time for the Fed\u2019s next meeting in December.<\/p>\n Hunter adds:<\/p>\n As such, investors considered that the Fed may therefore decide to play safe and stay put on interest rates until full visibility is restored.<\/p>\n Comments from several Fed members that monetary policy should remain restrictive led to a dip in the market consensus for a cut, dropping to a 50\/50 chance from what had been all but nailed on just two weeks ago.<\/p>\n Share<\/a>RedBird Capital drops its \u00a3500m bid for the Telegraph newspaper BREAKING: The consortium led by RedBird Capital has dropped its \u00a3500m bid for the Telegraph, throwing the future of the daily and Sunday titles into further uncertainty.<\/p>\n The Gulf-backed RedBird IMI consortium has dropped its \u00a3500m bid for the Telegraph newspaper. Photograph: Matt Cardy\/Getty Images<\/p>\n The private equity group founded by Gerry Cardinale has been under intense attack in recent weeks with the Telegraph newsroom \u2013 and allies including former editor Charles Moore and ex-Spectator chief Fraser Nelson \u2013 publishing a string of pieces calling for its links to China to be investigated.<\/p>\n Lisa Nandy, the culture secretary, had been expected to announce a decision imminently on whether to let the bid progress and also if it should be subject to scrutiny by the media regulator, Ofcom, and the competition watchdog.<\/p>\n Share<\/a><\/p>\n 10-year and 20-year gilt yields are on the rise again, as investors try to determine how confident they are about the Labour government\u2019s ability to raise enough funds to offer some fiscal certainty and stability long-term.<\/p>\n The 20-year gilt yield is at 5.233%, up 0.125 percentage points.<\/p>\n The 20-year gilt yield is at 5.233%, up 0.125 percentage points. Photograph: Refinitiv\/Reuters<\/p>\n That is the highest level since mid-October.<\/p>\n Concerns over the impact of the upcoming budget has pushed the yield on the on the 20-year gilt to its highest level since mid-October. Photograph: Refinitiv\/ReutersShare<\/a><\/p>\n Estimates by Berenberg suggest that the UK government needs to raise \u00a330bn, or around 1% of GDP, in the 26 November budget into order to get back on course to meet its fiscal target to meet all day-to-day spending with tax revenues by 2029-2030.<\/p>\n Berenberg explains that each percentage point increase in income tax rates would raise over \u00a310.5bn by the time that target year rolls around.<\/p>\n However, a 2 percentage point increase would be a \u201csimple, relatively efficient and front-loaded mechanism with which to raise over \u00a320bn,\u201d Andrew Wishart, senior UK economist at Berenberg says.<\/p>\n But in order to avoid breaking Labour\u2019s manifesto pledge to not \u201cincrease national insurance, the basic, higher, or additional rates of income tax, or VAT\u201d, the government is said to be instead looking to lower the threshold at which income tax increases from 20% to 40%.<\/p>\n But simply reducing the threshold from \u00a350,270 per year to \u00a346,000 would still leave the public finances \u00a36bn short of what it could raise through an income tax hike by 2029-30, \u201cthereby making additional hikes in smaller taxes necessary, too,\u201d Berenberg says.<\/p>\n Wishart explains:<\/p>\n As a result, the likelihood that the government will have to raise taxes again (or cut spending) in the future, in turn generating further bouts of policy uncertainty, has grown.<\/p>\n He adds:<\/p>\n A smaller and more back-loaded fiscal tightening would therefore damage the government\u2019s fiscal credibility and limit the extent to which the Bank of England lowers interest rates in 2026.<\/p>\n That is the straightforward economic explanation for the 7bp rise in the 10-year gilt yield to 4.50% today.<\/p>\n The u-turn also demonstrates a lack of political competence which has probably led investors to increase the probability they attach to a change in the leadership of the Labour party and government.<\/p>\n The risk is that the Labour party replaces Keir Starmer and Rachel Reeves with a duo positioned further to the left on the economic policy spectrum and less committed to fiscal sustainability.<\/p>\n Share<\/a><\/p>\n UK stock indexes are still suffering, with the FTSE 100 losing further ground and trading down 1.3%.<\/p>\n There are only three companies trading in positive territory, with banks like Lloyds and NatWest still among the biggest fallers, each down around 3.3%.<\/p>\n Few stocks on the FTSE 100 were trading in positive territory on Friday morning. Photograph: Refinitiv\/ReutersShare<\/a><\/p>\n Analysts are expecting further easing in bond prices as investors digest the flurry of news on Reeves\u2019 budget plans.<\/p>\n Hal Cook, senior investment analyst at Hargreaves Lansdown says: <\/p>\n As is often the case with quick reaction to surprising news, it\u2019s likely that these moves are over-reactions and yields definitely have potential to come back down from here.<\/p>\n Just because Labour may no longer be planning on increasing income tax, we don\u2019t yet know what they may plan to do instead.<\/p>\n Government bond markets definitely have the power to keep government budgets in check, as we saw in the UK with the Truss mini-Budget in 2022 and in the US around Liberation Day earlier this year. Watch this space.<\/p>\n Share<\/a><\/p>\n Kiran Stacey<\/p>\n Full story: UK borrowing costs up after markets spooked by Reeves\u2019s income tax U-turn<\/p>\n Borrowing costs for the UK have increased and the pound fallen after the chancellor\u2019s extraordinary last-minute decision<\/a> to ditch tax-raising plans in the upcoming budget.<\/p>\n Interest rates on government bonds rose by more than 10 basis points in early trading, putting them on track for their worst day since 2 July, when investors responded to a tearful appearance by Rachel Reeves in the House of Commons chamber. The pound meanwhile dropped 0.5% against the dollar.<\/p>\n The market reaction came after government sources confirmed Reeves had dropped plans to raise income taxes to help close a budget shortfall of about \u00a330bn.<\/p>\n The U-turn came despite weeks of warnings to Labour MPs and the wider public that the chancellor might have to break her manifesto pledges on tax to avoid a market meltdown.<\/p>\n Reeves has been working on plans for weeks to raise income taxes at the budget, despite having promised not to do so before the election.<\/p>\n The chancellor has even invited external experts<\/a> to brief Labour backbenchers on the difficult decisions they are likely to have to defend.<\/p>\n Read more:<\/p>\n![\"Mark](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2025\/11\/1763140331_972_mark_sweney_140x140.jpg\")
Mark Sweney<\/p>\n