Rachel Reeves' Tax U-Turn Sparks Market Reaction

Rachel Reeves, British finance minister, reversed her stance on an income tax hike due to improved fiscal forecasts. The decision, which caused government bond prices to fall, signifies a shift away from raising income tax, yet she faces pressure to meet fiscal targets through alternative means.

Rachel Reeves, the British finance minister, has decided against raising income tax rates in the forthcoming budget, causing a notable reaction in the financial markets. This policy shift came after the Office for Budget Responsibility provided more positive fiscal forecasts.

The decision reverses Reeves' earlier indication that tax hikes might be necessary to meet fiscal targets, leading to a decline in British government bond prices upon the market's opening. Investors had previously taken comfort in Reeves' strong stance on fiscal discipline.

Despite this reversal, Reeves still faces challenges in crafting a budget that ensures fiscal resilience while avoiding deep public investment cuts. As details of the budget remain unsettled, the economic community watches closely for Reeves' next moves.

(With inputs from agencies.)