Market Shock: UK Bond Yields Surge Amid Tax Plan Changes

British government bond prices dropped, causing a rise in yields amidst reports that planned income tax hikes have been scrapped. Prime Minister Keir Starmer's decision not to raise income tax has led to speculation on taxing banks to address fiscal gaps. Stocks and the pound also tumbled.

LONDON - In a significant market response, British government bond prices fell sharply as reports emerged suggesting Prime Minister Keir Starmer's government will not increase income tax rates as previously planned. Instead, the move is seen as a strategic shift just before the forthcoming November 26 budget.

This decision has had a notable impact on financial markets. The FTSE index dropped over 1%, significantly affecting bank stocks, with Barclays, Lloyds, and NatWest each experiencing losses exceeding 3%. The yield on Britain's 10-year government bonds soared by 10 basis points to 4.54%, marking its largest one-day rise since early July. In contrast, the equivalent German bond yields experienced a modest increase of 2 basis points.

Market analysts now speculate that if income taxes aren't raised, the government may consider increasing taxes on banks to address the fiscal deficit. Coupled with these developments, the British pound weakened against the euro and the dollar, highlighting growing market uncertainty over the UK's fiscal policies.

(With inputs from agencies.)