The FTSE 100 experienced a significant decline on Friday, underperforming other European markets. This downturn was attributed to a surge in UK gilt yields and a weakening pound, triggered by reports suggesting potential changes to income tax plans in the upcoming budget. This development has reignited concerns about the UK’s fiscal stability, leading to a reassessment of expectations for future Bank of England rate cuts.
- The FTSE 100 fell over 1%.
- UK gilt yields surged, and the pound weakened.
- Reports suggest Chancellor Reeves may drop income tax hike plans.
- Money markets scaled back Bank of England rate cut expectations.
- Banks like Lloyds, Barclays, and NatWest were among the worst performers.
- Homebuilders such as Barratt Redrow, Persimmon, and Berkeley also declined significantly.
- Rolls-Royce experienced a drop.
- Shell and BP were among the few gainers, benefiting from rebounding oil prices.
This data suggests the FTSE 100 is currently vulnerable to domestic fiscal policy concerns. Uncertainty surrounding the UK’s financial outlook, particularly regarding taxation and government borrowing, is negatively impacting investor sentiment. This environment is causing investors to reassess their positions, especially in sectors sensitive to interest rate changes and economic growth, such as banking and housing. While some companies can benefit from factors such as rising commodity prices, the overall trend indicates a period of instability for the index.