Why Budget smorgasbord is now only option for Reeves

No doubt to her relief, the cost of the chancellor's substantial borrowings on behalf of the British people has subsided following a spike in gilt yields on Friday.

- SEAN O'GRADY

In what must be the most chaotic Budget preparation in history, the government has somehow contrived to end up in a worse position than if it had just delivered all the bad news a fortnight ago. The financial markets are still unsettled, exacerbated by a bit of tech selloff and some fresh turmoil in crypto, and that’s a bad thing all round.

Why did gilt prices rise?

After the unprecedented “scene-setting” speech delivered by Rachel Reeves earlier this month, speculation mounted that she was going to raise income tax. Reeves said: “If we are to build the future of Britain together, we will all have to contribute to that effort, each of us must do our bit for the security of our country and the brightness of its future.” It was tantamount to a declaration of intent.

Investors care little for manifesto promises and are more concerned about whether a state can service its national debt. A hike in income tax represents an immediate, substantial and reliable increase in revenues. As expectations mounted, UK government debt became more popular, so gilt prices rose and the market rate of interest needed to keep them attractive fell. Politics aside, it was all looking fiscally good for Reeves.

What went wrong?