‘A bit of a relief’: a City trading floor reacts to Reeves’s budget

As financial traders gathered in London's Canary Wharf district for Rachel Reeves's budget announcement, chaos ensued when the government's official economic analysis was accidentally leaked early. The Office for Budget Responsibility's (OBR) numbers flashed on screens, triggering a flurry of activity among traders trying to decipher the implications. Will Marsters, a sales trader at Saxo UK, humorously remarked, "Boom! There's your 200-pager," as the detailed analysis was revealed.

Despite the chaotic start, the reaction in currency and bond markets was relatively stable. The benchmark 10-year gilt yield initially dropped from 4.5% to 4.42% before bouncing back up to 4.52%. By late afternoon, yields had settled back at 4.4%, indicating a slight decline in borrowing costs throughout the day. This trend was seen as a positive sign that lending money to the UK was not perceived as riskier by the markets.

Neil Wilson, an investor strategist at Saxo UK, noted that the lack of major surprises in the budget announcement allowed for a sense of relief among investors. However, he raised concerns about the credibility of the forecasts, questioning the feasibility of promised budget tightening in the future. With elections looming, the prospect of significant welfare cuts or tax hikes in the long term seemed remote.

Following the OBR leak, the value of the pound experienced volatile trading, initially jumping before falling to $1.3124. By the end of the day, it had recovered to $1.3229, marking a 0.5% increase. Mike Owen, another sales trader, described the price action as a relief amidst the uncertainty, emphasizing the challenges of navigating such volatile market conditions.