The pound has now dropped to $1.3064, a new six-month low, as City traders anticipate tax rises in this month’s budget.Sterling has lost more than 0.5% today, or around three-quarters of a cent, with analysts pointing to Rachel Reeves’s promise of an “iron clad” commitment to her fiscal rules, and her failure to rule out tax rises.Fiona Cincotta, senior market analyst at City Index, says:In a rare pre-budget speech, Reeves reiterated her commitment to budget goals and what many are considering as weaves, paving the way for more tax hikes and tough decisions in the Budget that would come close to breaking the party’s manifesto pledges.

Reeves is increasingly expected to lift income tax by 2p at the same time as lowering National Insurance by 2p as part of the measures that she will take to plug a fiscal black hole of over £20 billion,This means that working people won’t be affected, but pensioners will,High spending, weak growth, and a productivity downgrade mean Reeves is now in a position where she has little choice but to hike taxes,As Saxo Market’s Neil Wilson flagged earlier (see 9,41am) tighter fiscal policy (eg higher taxes) should typically lead to looser monetary policy (lower interest rates), which leads to a weaker currencey.

Time to recapThe pound has weakened, and UK government bonds have strengthened, after chancellor Rachel Reeves appeared to clear the way for tax rises in this month’s budget.In an early morning speech, Reeves declined to reiterate Labour’s manifesto commitment against broad-based tax hikes, warning that the public finances were in a worse state than expected after “years of economic mismanagement”.Reeves told reporters her Budget priorities were to bring down borrowing costs, NHS waiting lists and the cost of living, while also citing predictions that weak UK productivity would create a large fiscal black hole.Reeves explained:“As chancellor, I have to face the world as it is, not the world that I want it to be.And when challenges come our way, the only question is how to respond to them, not whether to respond, or not.

”Reeves also stated her ‘iron clad’ commitment to her fiscal rules,The City took the speech as a clear signal that taxes will rise on 26 November,Gilt prices rose, pushing down the yield (or interest rate) on UK debt,Currently, the yield on UK 10-year bonds is down 3 basis points (0,03 percentage points) at 4.

4%, while long-dated 30-year bonds are also down 3bps at 5.18%.Some economists predicted that a tough budget packed with fiscal tightening measures could encourage the Bank of England to cut interest rates more quickly.In response, the pound has dropped by almost a cent today to $1.3044, a near-seven-month low.

Rachel Reeves could create a “virtuous feedback loop” by raising taxes to bring down public borrowing, and prompting lower interest rates, argues Andrew Wishart, economist at Berenberg bank,In an upbeat take on this morning’s speech, Wishart writes:UK Chancellor Rachel Reeves’ commitment to inflation and public debt reduction at the expense of the Labour party’s manifesto commitment to not raise certain taxes in an unusual pre-budget speech this morning is encouraging,A major tightening of fiscal policy at the budget announcement on 26 November could create a virtuous feedback loop to lower interest rates and public borrowing, even if it is delivered by tax hikes rather than spending cuts,By making “cutting the national debt” one of the guiding principles of the budget, the Chancellor hinted that she would tighten fiscal policy more aggressively than markets anticipated so far,Existing plans to run a current budget surplus of £9.

9bn in fiscal year 2029-30 would only have stabilised the debt-to-GDP ratio.Reeves confirmed that her totemic government investment plan totalling 2% of GDP per year will remain in place, leaving her the options of cutting day-to-day spending or raising taxes.Although the Chancellor mentioned welfare reform and public sector productivity, the prioritisation of health and defence spending suggests that spending cuts will make a marginal contribution to the tightening of fiscal policy in the 26 November budget at best.The Chancellor as good as abandoned the Labour party’s manifesto commitment not to raise any of the main taxes on income and consumption (income tax, value added tax and national insurance) by avoiding restating it.This paves the way for a broad-based tax hike at the budget.

It is extremely rare for chancellors to haul in journalists for a formal speech less than three weeks before a budget,But Reeves and her team are acutely conscious of how difficult a communications challenge they have ahead of them,Reeves had hoped to stick to Labour’s manifesto pledges not to touch income tax, VAT or national insurance, reaching instead for progressive “reforms” of the tax system that would raise more from those with the “broadest shoulders”,But some in Labour were always sceptical about the politics of that – fearing a botched “pasty tax”-style budget – and an OBR forecast at the worse end of the Treasury’s fears has put the manifesto promises back in play,Amid a maelstrom of speculation about individual tax rises, then, the team at No 11 were keen to haul back control of the narrative….

China has committed to further talks with the EU about easing the restrictions on the global exports of rare earths critical to the car industry, the European Commission has said.While the White House said Beijing would “eliminate China’s current and proposed export controls” on rare earths and critical minerals following a summit between Donald Trump and Chinese president Xi Jinping in Korea last week, the EU is still subject to some restrictions.China agreed a global 12-month pause on new restrictions it threatened on 9 October as part of the deal hashed out with Trump in Korea last week.However restrictions on rare earth exports imposed by China in April still apply to the EU, impacting everything from car assembly lines to the production of wind turbines and computer servers.Ahead of a briefing of EU ambassadors on Wednesday, an EU spokesperson said progress had been made at a meeting of senior officials from both sides like Friday in Brussels.

Trade spokesperson Olof Gill said:“The EU and China also discussed how to making supply chain stability in relation to other rare earths [notably those for which China imposed export controls in April 2025], and commited to further engage on licensing facilitation measures, including discussing general licences,”A new licensing system, he added would “facilitate stable exports”,Rachel Reeves’s approach to the budget suggests there’s an increased chance of a cut to UK interest rates in December, argues Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK,Pugh says this morning’s speech is unlikely to move the dial for this week’s Monetary Policy Committee decision, though:“We didn’t learn anything new from Rachel Reeves speech this morning,But the emphasis on cutting the cost of living and bringing down interest rates gives us more confidence that this budget will be deflationary rather than a repeat of the stagflationary budget of last year.

“We doubt that the speech will have had much impact on the outcome of the MPC meeting on Thursday.It will be a close call, but we think the majority of the MPC will want to see the actual policies contained in the budget before committing to another rate cut.However, it does raise the chances of a rate cut in December if the budget is as deflationary as the Chancellor hinted at this morning.“Our current estimates suggest that Rachel Reeves will have to engage in a fiscal consolidation of between £35bn - £40bn, depending on how much she wants to increase the fiscal headroom by.Slower growth in spending can bear some of the burden, but not much given spending envelopes have already been set, and the government has shown it cannot get even minor changes to welfare spending through parliament.

That means the bulk of the consolidation will have to come from increased taxes.The pound is continuing to fall too – it’s now lost a whole cent against the US dollar to $1.3035, as traders anticipate tax cuts in the UK budget later this month.The US stock market has opened with a bump, as investors fret about a possible pullback in shares.The S&P 500 share index has dropped by 1.

2% at the start of trading, losing 80 points to trade around 6,771 points,Traders appear jittery after recent warnings that the stock market rally, driven by excitement over artificial intelligence, may have gone too high,Shares in Palantir, the data intelligence company, have tumbled 9% despite beating analyst estimates for third-quarter sales last night and raising its annual revenue outlook,Tesla are down 4% after Norway’s sovereign wealth fund has said it will vote against a $1tn (£765bn) pay package for its chief executive, Elon Musk,Simon French, chief economist at investment bank Panmure Gordon, says Rachel Reeves gave a “fair speech” allocating blame, attribution, and the principles guiding her upcoming decisions on tax.

He has three takeaways:Firstly, that the Chancellor wishes to broaden the base of who pays any additional tax beyond businesses and those with high value assets/incomes.Secondly, that she wishes to boost headroom beyond the £10bn she left herself in her first two fiscal events.Thirdly, the Chancellor wants to bear down on inflation through the fiscal choices she makes - in a clear confession that this was a policy failure in her October 2024 Budget.All three of these conclusions are sensible, French adds, cautioning that the politics however are “toxic”.Unless the Chancellor - backed by her PM - goes far further and faster on deregulatory supply side reforms to energy, housebuilding, labour and financial markets she will find herself forced into considerable public spending cuts later in the Parliament.

Another factor behind today’s market nervousness is that famous fund manager Michael Burry has bet against two major AI names,Burry’s Scion Asset Management took bearish wagers on Nvidia and Palantir, by buying put options on both firms, regulatory filings released on Monday show,Burry is a well-known name, having featured in The Big Short book and film for having shorted the US subprime mortgage market before its collapse,Rachel Reeves is facing fresh calls for a wealth tax, after delivering her early morning speech to prepare the ground for tough tax decisions in the budget,Green Party leader Zack Polanski has criticised the chancellor for not spelling out how her government will tackle the cost of living or address inequality.

Polanski is urging Reeves to “tax wealth fairly” to address inequality, reduce the burden on the poorest and help fund frontline government services, insisting:“Any measures that look to balance the books on the backs of some of the most vulnerable – and those struggling to pay their rent; their food and energy bills – instead of taxing the assets of multimillionaires and billionaires will be the mark of economic, social and environmental failure.“This must be a cost-of-living budget.That’s a moral imperative.Caitlin Boswell, head of advocacy and policy at Tax Justice UK, is also encouraging Reeves to “tax the super-rich” to improve living standards at the Budget, saying:There’s no excuse for sticking-plaster solutions or cuts to vital social security support when millions around the UK are still struggling to make ends meet.Reeves was right to focus on the cost of living crisis.

Clearly people need to see the cost of essential items and bills come down and investment in public services go up,This country doesn’t have a shortage of money, just a shortage of fairness,Rewiring the tax system to tax wealth the same as work can help the government build an economy that works for everyone,Critics of wealth taxes, though, argue that the revenue is highly uncertain, and predict the tax would lower long‑run growth, employment and investment,There’s some exciteable talk today that Rachel Reeves has wiped billions of the UK stock market today, but the reality is more nuanced.

The FTSE 100 did fall during and after the speech, amid expectations that tax rises might dampen consumer spending and economic growth.But it’s clawed back some losses since, with housebuilders’ shares risingAlso, other country’s stock markets are deeper in the red today in a general selloff.Germany’s DAX is down 1.3%, France’s CAC 40 has lost 1.2% and Spain’s IBEX has fallen by 1%.

Wall Street is heading for losses too, with the S&P 500 share index down 1% in pre-market trading and the tech-focused Nasdaq off 1,2%,The selloff is being partly attributed to a cooling in the artificial intelligence boom, despite data intelligence company Palantir reporting up rapid quarterly growth last night,Another factor is fading optimism that the US Federal Reserve will cut interest rates as soon as December,A third reason is fears that markets have risen too high, and are vulnerable to a correction.

Kathleen Brooks, research director at XTB, explains:Wall Street CEOs have also put investors on notice for a correction in the next 1-2 years.The Goldman Sachs CEO said that tech stock valuations are ‘full’, and the Citadel CEO also warned that stock markets are irrational at the highs of bull markets.With the S&P 500 trading at a price to earnings multiple above its 5-year average, it is no wonder that the wisest on Wall Street are concerned about the future.It seems like the investment community has taken heed of this message, and European stocks are falling.UK bonds have lost some of their earlier zip, as investors digest Rachel Reeves’s speech.

As flagged at 8,26am, bond yields (borrowing costs) fell after Reeves pledged an ‘iron clad’ commitment to sticking to the fiscal rules,But around half of that rally has faded, with 10-year and 30-year bond yields both down around 2 basis points (0,02 percentage points, a small move), after the chancellor didn’t confirm that taxes will definitely rise,Matthew Amis, investment director for rates management at Aberdeen Investments, says:“Chancellor Reeves’s speech this morning provided the gilt market with all the right comforting words as we head towards the Autumn Budget.

The Chancellor confirmed the fiscal rules are ironclad, that she intends to increase the fiscal headroom and the importance of inflation falling.She mentioned re-visiting welfare reform, and while admittedly there were more hints to tax rises than spending cuts, there were some hints to spending cuts nonetheless.Gilts yields fell throughout the speech, but pared gains as it became clear that even though tax hikes seem inevitable, they weren’t going to be announced today.“The question now is: can she deliver? UK chancellors have talked tough in the past, only to then fail on delivery or U-turn at the last moment.If Chancellor Reeves is as bold as she was this morning at the Autumn Budget, then we believe gilts yields can continue to fall into year-end, outperforming peers.

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