Pound hits lowest since April as investors anticipate budget tax rises; markets hit by AI valuation jitters – as it happened

3.33pm GMT
Closing post

Time to recap
The 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.”

Related: Rachel Reeves refuses to rule out tax rises as autumn budget looms

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.

Related: Reeves aims to prepare voters and markets for possible budget tax rises

3.19pm GMT

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.

3.10pm GMT
Analysis: Reeves aims to prepare voters and markets for possible budget tax rises

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….

Related: Reeves aims to prepare voters and markets for possible budget tax rises

3.02pm GMT
China commits to further EU talks over rare earths

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”.

2.54pm GMT
RSM: Budget likely to be deflationary

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.

2.39pm GMT
Pound extends losses

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.

2.38pm GMT
Wall Street joins selloff

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.

Related: Elon Musk’s $1tn Tesla pay deal to be rejected by huge Norway wealth fund

Updated at 3.13pm GMT

2.24pm GMT

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.

1.06pm GMT

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.

12.49pm GMT
Reeves urged to tax super-rich more

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.

12.04pm GMT
Markets hit by correction fears

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 rising
Also, 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.

11.36am GMT

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.”

10.58am GMT

This morning’s address by the chancellor was an “odd speech”, argues economist Paul Johnson, the former head of the Institute for Fiscal Studies thinktank.
Johnson, now Provost of The Queen’s College, Oxford, posted on X:

In one sense fair enough to blame last government for problems. But wrong to pretend all utterly unexpected and couldn’t possibly have been predicted at election or budget last year. We knew the risks when tax promises were made. And so did she.

10.49am GMT

Musa Sabo, director at tax advisors Andersen LLP, says people should brace for higher taxes:

“Rachel Reeves’ speech this morning has done nothing to ease the fears surrounding the upcoming Budget, and such a speech would only be required ahead of breaking their manifesto pledge not to raise taxes on working people.“The message from the Chancellor is now clear - brace yourselves for an increase to income tax, national insurance or VAT at the Budget.”

10.35am GMT

There are three principle takeaways from Rachel Reeves’s speech this morning, reports Michael Brown, senior research strategist at brokerage Pepperstone, namely:

The Chancellor all-but-confirmed that the OBR will be downgrading its trend productivity growth forecasts
Reeves noted that she is seeking a greater degree of fiscal headroom (>£9.9bln that was left in the spring) to protect against future shocks
Reeves refused to repeat the manifesto promises not to raise income tax, national insurance, or VAT

He reckons this means Reeves will deliver a larger fiscal tightening than had been expected, to address a black hola of perhaps £35bn, due to:

£20bln from the OBR’s productivity downgrade
£5bln from the failure to cut welfare spending
£3bln from measures to cut consumer energy bills
Between £5bln - £10bln in seeking to build a buffer larger than the £9.9bln in the ‘Spring Statement’

That means an income tax hike is now “incredibly likely”, Brown suggests, in two ways:

Firstly, the freeze on income tax thresholds, in place since 2022, and currently due to expire in 2028, looks set to be extended once more. This, over time, causes an effect known as ‘fiscal drag’, whereby an increasing number of employees are dragged into higher tax thresholds as earnings increase, but the thresholds remain unchanged. Freezing these thresholds is likely to raise around £10bln a year.
Secondly, an outright increase in income tax rates is likely to be delivered. Increasing the higher rate of income tax, likely an easier ‘sell’ to Labour MPs and voters, would raise around £1.5bln per annum, barely a ‘drop in the ocean’ in the grand scheme of things. Consequently, the balance of risks increasing tilts towards the Chancellor increasing the basic rate of income tax, where a 1p increase would raise between £6bln - £7bln a year.
For context, no Chancellor has raised the basic income tax rate since all the way back in 1976*. That same year, the UK was forced to go ‘cap in hand’ to the IMF for a bailout, so here’s hoping history doesn’t repeat.

Related: ‘Just hysteria’: UK faces a crisis but the Denis Healey comparison is overblown

* – I think 1975….

Updated at 11.30am GMT

10.09am GMT
AJ Bell: Reeves should be clearer about her plans

“Rachel Reeves’ unusual stance of giving a big speech on the eve of the Budget has left investors with more questions than answers, and done nothing to remove uncertainty around taxes,” says Dan Coatsworth, head of markets at AJ Bell.
Coatsworth points out that the bond market would be happy if the chancellor raises taxes as it would help to improve public finances and make the UK less risky from an investment perspective.
He adds that Reeves needs to be clearer about what she is planning:

“The chancellor said the speech was about giving context to the challenges facing the government, but she batted away questions about taxes faster than an Olympic table tennis player.
“Many people are fed up with this game. There are growing calls for the chancellor to be crystal clear in her plans and make bolder decisions. No-one will be shocked at tax rises and many people believe it is better to sort the situation out once and for all, rather than keep tinkering at the edges. This feels like Reeves’ last chance to fix the house, otherwise her days could be numbered.”

10.07am GMT
City Index: pound falls as Reeves has little choice but to hike taxes.

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.

Updated at 10.19am GMT

10.02am GMT
News story: Rachel Reeves avoids ruling out tax rises as autumn budget looms

Rachel Reeves has refused to rule out tax rises in this month’s budget, insisting she must “deal with the world as I find it, not the world as I might wish it to be”.
The chancellor foreshadowed an income tax increase, a breach of Labour’s manifesto commitment, as a result of the public finances being in a worse state than expected after “years of economic mismanagement”.
In an early morning Downing Street press conference, she said that “each of us must do our bit” for the country’s future. “If we have to build the future of Britain together, we will all have to contribute to that effort,” she said.
“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 the how to respond to them, not whether to respond, or not,” she told reporters.

Related: Rachel Reeves avoids ruling out tax rises as autumn budget looms

9.41am GMT
Saxo: Sterling on back foot after Reeves hints at tax rises

The market reaction to Reeves’s speech thus far is to sell sterling, reports Neil Wilson, UK investor strategist at Saxo Markets.
He tells clients:

GBPUSD dipped to retake the 1.30 handle, hitting its weakest since April. It’s the pressure valve and Reeves wouldn’t like to see that kind of reaction coming directly from her speech.

Wilson reckons that this morning’s speech suggests ‘panic’ in the Treasury, writing:

Panic stations at Number 11 by the looks of it - offering a speech 3 weeks before the Budget that was only announced last night. The market is doubting credibility…

He adds that the message from the speech is that tax hikes are coming, adding:

This could well be a manifesto-breaking hike to income tax - she refused to say she would stick to the manifesto pledge to not raise income tax, NI or VAT. Lots of messaging around values and doing what’s right, not what’s popular.
Reeves is caught between various stools – the country (manifesto pledges), the party (spend more, protect the NHS), and the markets (gilts selling off just narrows the headroom). So, it’s a very tricky line to walk but ultimately, it’s the lack of political leadership from the top that is the making of this situation.
However, a bold tax hike should lower gilt yields and could allow the BoE to go further with cuts. This will be a contractionary fiscal blow to the economy. But the bet is that you get the market onside, generate confidence from certainty, which gives you more flexibility later. The risk is that you deal a big blow to confidence in the real economy and hit growth, which makes it all for nought. Either way, fiscal tighter, monetary looser suggests sterling remains on back foot.

9.33am GMT
New Economics Foundation: small tweaks won't fix economic problems

Lydia Prieg, chief economist at the New Economics Foundation, has responded to this morning’s speech from Rachel Reeves:

“Rachel Reeves is right to say the economy isn’t working - but the challenges we face can’t just be solved by cutting regulation and making small tweaks to the tax system. We have a country that’s been ravaged by austerity, as well as an ageing population meaning spending on health and pensions is only set to increase. The scale of spending the country requires to get our public services and living standards up to scratch is significant.
Two things needs need to happen. Taxes will need to go up - and the chancellor should focus on those who are most able to contribute. To start with this government needs to equalise capital gains tax with income tax and get to grips with taxing land.
Secondly, this government will need to invest more - to do this they need to reassess the fiscal rules and the OBR’s position in assessing them. This is how we will achieve long term stability.”

9.29am GMT

During her speech, Rachel Reeves pointed to the record highs seen on the London stock market last week as a sign of the UK’s positive economic performance.
Unfortunately, the UK stock market has extended its earlier losses, with the FTSE 100 now down 97 points, or 1%, at 9604 points.
Although that’s part of a wider global selloff today, there may also be concern about the impact of higher taxes on consumer spending.
Daniela Hathorn, senior market analyst at capital.com, explains:

Overall, her [Reeves’s] comments framed a pragmatic approach to rebuilding fiscal resilience while managing public expectations ahead of the next Budget.
The market reaction has been limited, with gilt yields dropping marginally as investors welcome the emphasis on prudence. However, the FTSE 100 has extended the losses into the European morning as Reeves’ comments highlight a difficult fiscal situation in the UK, which could have a negative effect consumers and business in tax increases are announced on November 26th.

9.07am GMT
Chart: Pound lowest since April against the US dollar

Updated at 9.21am GMT

8.57am GMT
Quilter: Reeves prepared the ground for higher personal taxes

Rachel Reeves’s pre-Budget speech this morning was all about preparing the ground for some painful measures later this month, says Rachael Griffin, tax and financial planning expert at Quilter:

She knows this Budget will define her credibility, and her message today was clear that Britain’s finances are in a worse state than many realise, and everyone will be expected to play their part in putting them back on track.
Reeves was at pains to distance herself from the politics of austerity, arguing that deep cuts and short-term fixes are what weakened the country’s economic foundations in the first place. But while her argument against renewed austerity will appeal to many scarred by the last decade, it also lays the groundwork for a different kind of pain, which is higher personal taxes to rebuild public finances. She’s made it clear she is happy to be unpopular if it helps secure public finances.
Her insistence that ‘easy answers’ are off the table is a warning that there will be few giveaways in this Budget. The Chancellor is trying to convince both markets and the public that fiscal discipline can coexist with fairness, but for households already facing high borrowing costs and squeezed budgets, the idea of contributing more will still be a tough sell.
This was a speech designed to project authority and honesty, not to win popularity. The real challenge for Reeves will come when she has to translate that rhetoric into decisions that feel credible to investors but also tolerable for working families.

8.53am GMT
Pound hits six-month low

UPDATE: The pound has hit a six-month low again the US dollar, losing almost half a cent to $1.3086.
It’s also weaker against the euro, down 0.3% this morning.
Sterling has weakened in recent days as City investors have begun to predict faster cuts in UK interest rates.
A rate cut at Thursday’s Bank of England meeting is now seen as a 35% possibility, up from 30% at the end of last week.
If Rachel Reeves succeeds in sticking to her fiscal rules, and raises taxes, that could encourage policymakers at the BoE to lower borrowing costs to protect the economy.
George Vessey, lead foreign exchange & macro strategist at Convera, explains:

“The pound has weakened notably over the past month, driven by a combination of softer UK data, heightened fiscal uncertainty, and a dovish recalibration of interest rate expectations.
Markets have increasingly priced in further easing from the Bank of England (BoE) as the prospect of looming tax rises grow. This has eased stress in the UK bond market though, dragging gilt yields lower.

Updated at 9.03am GMT

8.43am GMT
Reeves refuses to say she'll stick to manifesto pledges on tax

Rachel Reeves has failed to say she’ll stick to the government’s manifesto pledges on tax.
Asked if she will stick to Labour’s manifesto promise not to raise the taxes that working people pay, the chancellor replied:

I will set out the individual policies of the budget until the 26th of November. That’s not what today is about. Today is about setting the context up for that budget.
And your viewers can see the challenges that we face, the challenges that are on a global nature. And they can also see the challenges in the long-term performance of our economy. And the Office for Budget Responsibility will set all that out. They’ve done the review of the supply side of the economy that looks at the past, but they use the past to predict the future.
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 the how to respond to them, not whether to respond, or not.
And as I respond on the budget 26 November, my focus will be on getting NHS waiting lists down, getting the cost of living down and also getting the national debt down.

Related: Reeves refuses to say she will stick to manifesto pledge on tax rises and insists she must face world ‘as it is’ – UK politics live

8.41am GMT

Reeves is taking questions from the press pack now, pledging to be honest with people, and put the national interest first.
She says the focus on the budget is on “getting the debt down, getting NHS waiting lists down and getting the cost of living down.”

8.41am GMT

The message from Rachel Reeves today is that “Each of us must do our bit”.
She hasn’t explicitly said that she plans to raise taxes later this month (but she’s also not denied it!), saying:

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.

Updated at 9.21am GMT

8.35am GMT

Rachel Reeves wound up her speech by promising to do what is right, not what is popular.
She pledges the budget on 26 November will be a budget for growth that supports businesses to innovate.
And she promises to do “what is necessary to protect families” as she takes decision on tax and spending.

8.28am GMT
UK borrowing costs drop as Reeves speaks

The cost of UK borrowing is falling as Rachel Reeves outlines her priorities for this month’s budget.
The chancelllor’s promise that she has an ‘iron clad’ commitment to her fiscal rules is probably reassuring bond investors.
The yield, or interest rate, in UK 10-year bonds has dropped by 4.5 basis points (0.045 percentage points) to 4.39% this morning (from 4.43% last night).
The yield on 30-year bonds has dropped by 5 basis points, to 5.166%, the lowest in about a week – but further from the 29-year high of 5.75% hit in early September.
Those are relatively small moves, but certainly moving the way the Treasury would like to see.
UPDATE: Victoria Scholar, head of investment at interactive investor, says:

In an unusual address ahead of this month’s Autumn Budget, Chancellor Rachel Reeves tried to prepare voters for tax cuts by laying out the UK’s economic challenges.
She talked about how Tory-era austerity hurt years of capital investment and how productivity performance is weaker than previously estimated.
She said inflation is still too high and interest rates are still a constraint and government borrowing costs have increased. Reeves also said her commitment to the fiscal rules is iron clad, pushing 10-year and 30-year bond yields lower.

Updated at 9.57am GMT

8.24am GMT
Reeves promises 'iron clad' commitment to fiscal rules

Rachel Reeves then insists that her commitment to her fiscal rules is “iron clad” – a signal to the financial markets that she will not sign off a debt splurge in this month’s Budget.
She explains that £1 in every £10 of government spending goes on servicing the national debt.
And she argues against calls for more borrowing, pointing out that there is a limit that banks and pension funds will pay for UK debt.
She says:

“The more we try to sell, the more it will cost us.”

Reeves also pledges not to repeat the mistakes of the “cycle of austerity and decline” which has led the UK to its current situation.

8.20am GMT

Although interest rates have been cut five times this parliament (from 5.25% to 4%) they are still a constraint on the economy, Reeves says.
[The Bank of England is due to set rates again on Thursday].

8.18am GMT

In another criticism of previous governments, Rachel Reeves warns that years after austerity has led to capital investment being sacrificed.

8.17am GMT

Reeves then warns that it is clear that the UK’s productivity performance is weaker than previously thought.
She says she won’t preempt the conclusions of the Office for Budget Responsibility’s assessment of UK productivity (reminder, there is speculation the OBR could lower its estimate of trend productivity growth by 0.3%).

8.15am GMT
Reeves: World has thrown more challenges our way

Chancellor Rachel Reeves warns that years of “economic mismanagement” has limited the UK’s potential, leaaving to unrealised potential.
She adds that the world has thrown “more challenges our way” since her first budget a year ago.
She cites three factors:

tariffs which have dragged on global confidence, dampening growth
inflation has been too slow to come down, with supply chains remaining volatile
the cost of government borrowing has increased around the world – something the UK has been particularly vulnerable to

8.12am GMT

Rachel Reeves begins her speech by saying she will make the choices necessary to deliver strong foundations for this economy.
She says her budget later this month will focus on protecting the NHS, reducing the national debt and improving the cost of living.

8.10am GMT
Watch Rachel Reeves's speech here:

Rachel Reeves has just arrived to give her much-anticipated speech – you can watch it live here:

8.09am GMT

Stocks have dropped at the start of trading in London, although Rachel Reeves isn’t to blame.
The FTSE 100 index of blue-chip shares has dropped by 70 points, or almost 0.75%, to 9628 points.
It’s part of a wider sell-off in global financial markets, in what looks like a risk-off mood among investors.
Mining companies are leading the fallers in London, with copper producer Antofagasta down 3.3%.

8.08am GMT
Reeves: Today I will set out the choices our country faces

Rachel Reeves has just posted on X that she will “set out the choices” the UK faces.
The chancellor wrote:

The Budget this month will focus squarely on the priorities of the British people: cutting waiting lists, cutting the national debt and cutting the cost of living. Today I will set out the choices our country faces and the values that will guide my decisions.

7.55am GMT
UK Politics Live: Reeves to roll pitch for budget tax rises

There’s obviously huge interest in Westminster, as well as in the financial markets, in Rachel Reeves’s speech – due to start at 8.10am GMT.
My colleague Andrew Sparrow will be tracking events here.

Related: Rachel Reeves to give speech preparing ground for budget tax rises – UK politics live

He writes:

David Cameron is credited with popularising the term “pitch rolling” in Westminster, to describe the process whereby politicians prepare the public for difficult announcements by shaping the argument in advance. It is a metaphor with connotations of a gentle game of cricket, and pleasant summer afternoons.
Today Rachel Reeves is engaged in a classic piece of “pitch rolling”. But her task is more daunting. She won’t be flattening the odd bump; she has to shift some colossal PR obstacles, which is more a task for a fleet of JCB diggers.
That is because, when she delivers the budget three weeks tomorrow, she will have to fill fiscal gap reportedly as high as £30bn. That means tax rises, which are never an easy sell. But it also means going back on the promise she made to the CBI last year when she said she would not need to raise taxes again on the scale she did in autumn 2024. And there seems to be a very real chance that she will also decide to raise income tax, which would be a direct breach of a promise Labour made in its election manifesto.

7.39am GMT
Goldman Sachs also expect tax rises

Analysts at Goldman Sachs have predicted that Rachel Reeves’s budget could push down government borrowing costs, if she reassures the bond markets that she’s committed to tackling the deficit.
In a research note released to clients last Friday, Goldman Sachs predict that the chancellor’s budget measures – and pre-budget hints about what’s to come – could knock up to 0.2 percentage points off the cost of borrowing (the ‘yield’ on a 10-year bond) for a decade.
They explain:

Given the modest downside impact on growth and inflation, plus the potential for increased credibility in the deficit path, we expect the budget measures to lower 10y Gilt yields by around 10-20bp, although given budget expectations are already forming we see this as a tailwind for Gilts into the budget more than the on-the-day reaction.

Goldman Sachs also point out that UK bond yields remain the highest in the G10.
They also expect tax rises in the budget, saying:

The upcoming budget is set to tighten fiscal policy by around £30bn, which our economists expect will mainly comprise tax increases, including freezing income tax thresholds from 2028, broadening the NI [national insurance] tax base, pensions and property taxes.
We expect limited spending cuts, but that the budget delivers a modest increase in headroom at the end of the forecast horizon.

7.31am GMT
Tax rises at Budget ‘inevitable’, thinktank warns

This month’s UK budget will include significant spending cuts and tax rises to tackle “a significant deterioration in the public finances”, thinktank the Resolution Foundation has predicted.
In a new report issued this morning, the Resolution Foundation predicts that Rachel Reeves’s fiscal headroom (the £10bn margin to keep within her fiscal rules) will have been more than wiped out by changes in the economic outlook, and government u-turns since March.
That will create “a bleak picture for the public finances”, they say, as the independent Office for Budget Responsibility is expected to downgrade the UK’s ‘trend’ productivity growth by 0.3 percentage points, creating a £20bn shortfall.
That downgrade will be partially cushioned by other changes, including stronger than forecast wage growth.
The think tank says:

The upcoming Budget is a make-or-break moment for the Government. It seems clear that this month’s fiscal event will include significant spending cuts and tax rises spurred by a significant deterioration in the public finances.

The Resolution Foundation urge Reeves to take steps to increase her headroom, to as much as £20bn, to send a clear message to markets that she is serious about fixing the public finances.
They have calculated that doubling the fiscal headroom to £20bn and allowing for cost of living support would require £31bn of fiscal consolidation. And with limited scope for spending cuts, tax rises of £26bn are therefore likely to be needed.
Avoiding touching the three big taxes – VAT, Income Tax and National Insurance (NI) – “risks doing more harm than good”, they argue (even though Labour promised in their manifesto not to raise them).
Resolution also argue that the chancellor could offset a 2p rise in Income Tax with a 2p cut in employee National Insurance, raising £6bn while protecting workers from these tax rises.
Their report concludes:

So, although tax rises are inevitable, there is a way to do them which comes with a boost confidence in the economy and the public finances, while also reducing child poverty and the cost of living.

James Smith, research director at the Resolution Foundation, said:

“The Chancellor should look to make sensible tax reforms to car taxes, dividends and capital gains. Switching 2p of employee National Insurance onto Income Tax would raise £6 billion while protecting workers’ wages

Updated at 7.48am GMT

7.30am GMT
Introduction: Reeves to lay groundwork for budget tax rises

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With just over three weeks until the UK budget, speculation is mounting that Rachel Reeves will rip up the government’s manifesto promises and raise income taxes.
The chancellor will deliver a speech this morning which is widely expected to pave the way for a tax-raising budget on 26 November.
Downing Street says Reeves will lay out the economic choices she will take at the Budget later this month to cut hospital waiting lists, cut the national debt and cut the cost of living.
The Chancellor is expected to say she will take the necessary choices to deliver “strong foundations”, and explain:

“It will be a budget led by this government’s values, of fairness and opportunity and focused squarely on the priorities of the British people:
“Protecting our NHS, reducing our national debt and improving the cost of living.

Reeves faces a choice between tax rises, spending cuts, or breaking her fiscal rules through higher borrowing because of a black hole in the budget – partly caused by a productivity downgrade would leave her with a £20bn gap to fill.
Last night, Keir Starmer told MPs the government would take “tough but fair decisions”, promising a “Labour budget built on Labour values” that would protect the NHS, reduce debt and ease the cost of living.

Related: Reeves to lay groundwork for tax rises in ‘candid’ speech about budget

Mujtaba Rahman, managing director for Europe at consultancy Eurasia Group, says Reeves faces “an agonising choice” on whether to prioritise politics or economics.
He told clients:

The economics increasingly points to what Whitehall insiders are calling a “go big” strategy: another large tax hike, including on income tax, to close a gap of about £30bn to meet Reeves’s goal of balancing government spending and revenue by 2029-2030; however, abandoning the Labour manifesto promise not to raise income tax would leave the party wide open to Tory and Reform attacks.

Yesterday, Reform UK leader Nigel Farage rowed back on his party’s previous promise to deliver tax cuts, arguing it wasn’t realistic in the current economic climate.

Related: What would UK economic policy look like under Nigel Farage’s Reform?

The agenda

8.10am GMT: Chancellor Rachel Reeves to deliver speech in Downing Street
10am GMT: House of Lords committee inquiry on regulators and economic growth
10am GMT: FCA CEO Nikhil Rathi speech at Fair4All Finance event on ‘delivering financial inclusion together”
2:15pm GMT: Treasury Committee hearing on AI in financial services with new City minister Lucy Rigby