UK Chancellor Reassures Markets After Budget Selloff

Chancellor of the Exchequer Rachel Reeves is working to calm financial markets following a turbulent reaction to her recent budget, which included £40 billion in tax increases and significant borrowing that prompted a selloff in UK bonds. The yield on a 10-year government bond reached 4.568%, the highest since August 2023, while the pound declined to a two-month low against the dollar and euro. Reeves emphasized the Labour government's commitment to 'economic and fiscal stability' and asserted that public finances are on a 'stable and solid trajectory.' She noted that her fiscal rules would be met two years early and highlighted a projected fiscal consolidation that would reduce debt relative to GDP. Despite these reassurances, the Office for Budget Responsibility forecasts that UK inflation will remain above the Bank of England's 2% target until 2029, raising concerns about future interest rates. Market analysts express growing nervousness regarding the UK economy, indicating that expectations for interest rate cuts have diminished significantly, with rates unlikely to fall below 4% until 2026.