UK Chancellor changes consolidation plans, markets fear consequences

The British Chancellor of the Exchequer, Rachel Reeves, has changed her strategy. In order to consolidate the public finances, she originally planned to increase income tax to raise money to fund public services. However, she has now backed away from this plan thanks to better economic forecasts.

However, the decision has caused concern on the financial markets. Investors are worried about how Reeves will raise the necessary money for the budget. The markets have reacted by falling government bond prices and increasing the cost of government borrowing.

Reeves needs to raise tens of billions of pounds. Her original plan was to raise income tax, which would have been the first increase since the 1970s. In her words, the new fiscal outlook for the British economy has made her realise that this is no longer necessary.

The problem is that investors preferred the plan with the income tax increase. It seemed to them clearer and safer than looking for other sources.

(reuters, sie)