“Markets have had to catch up pretty quickly”

The astonishing early reveal of the UK budget’s main measures is causing chaos, with volatile moves in bonds and the pound...

Rachel Reeves’ Budget raises taxes by £26bn, taking the burden to an all-time high of 38 per cent of GDP by the end of the parliament, according to an accidentally released forecast by the Office for Budget Responsibility.

The OBR’s assessment of Reeves’ Budget was published amid chaotic scenes before noon on Wednesday, around 45 minutes before the chancellor delivered her crucial second Budget.

It revealed that Reeves will freeze all personal income tax thresholds until 2030-31, in a move that is expected to raise £8.3bn a year and is the biggest tax-raising measure.

The second-biggest tax measure is a raid on salary sacrifice pension contributions, which will raise an additional £4.7bn. Among the other measures mentioned are charges on electric cars raising £1.4bn, gambling duty reform to bring in £1.1bn, and a council tax surcharge on homes worth more than £2mn, which will raise £400mn in 2029-2030.

As the most unpopular UK Chancellor ever...

...there’s concern among cyber security experts as to how the OBR leak today happened too.

“It’s truly astonishing that such a market sensitive document could find its way online via official channels in advance of the Chancellor’s speech,” Kenny MacAulay, CEO of accounting software platform Acting Office said by email.

“Basic compliance requirements should be in place to prevent this from happening, and a complete review is required about how and why such a major breach would take place.”

But as Bloomberg strategist, Simon White notes, UK market spreads face the bigger risk from the potential political fallout if the budget lands badly, rather than from any major surprises in the announcement.

Never in recent memory has a UK budget had such grim anticipation, nor been so botched in its preparation.

A smorgasbord of leaks and U-turns has preceded what is expected to be a smorgasbord of tax rises and extra spending commitments.

Nevertheless, the market is not yet having a nervous breakdown. A combination of risk spreads and other UK markets, such as sterling, asset swap spreads and bond spreads, has widened recently, but is still well below where it was at the time of Reeves’ first full budget in October 2024.

The market is giving a cautious pass to Reeves’ tax-raising plans (which have been mostly leaked over the last 24 hours), but it’s an uneasy truce. It’s not inconceivable, as also discussed by my colleagues earlier, that pressure will mount on Reeves to quit if her party’s backbenchers don’t like her policies, or it lands especially badly with the electorate.

Unless the narrative shifts away from soaking working people and savers to inflate an already bloated benefits bill, the blowback may be considerable.

If Reeves comes under risk, the Prime Minister would be in the firing line too. There is talk of a “coronation” for Health Secretary Wes Streeting after the local elections in May. Markets discount to the present, and so does politics. Pressure might grow for a change of leadership much sooner.

Streeting would not be expected to be as fiscally loose as some other leadership candidates, but he is an untested quantity. Nor do we know who his Chancellor would be. What we do know is that a typical Labour MP did not get elected to save money.

Markets abhor uncertainty as well as spendthrift politicians. Risk spreads will widen much more sharply if Reeves plays a poor hand badly today.

Andrew Griffith, shadow business secretary, said:

“This Budget process has been a fiasco from start to finish and the unprecedented leak of the OBR’s report is just the final embarrassment.”