Sterling continued to rally after chancellor Jeremy Hunt scrapped the majority of his predecessor's tax changes this morning.
The chancellor announced most of the tax changes in last month's controversial "mini" Budget would now not go ahead after the market reaction led to the Bank of England having to intervene with a bond buying programme to shore up pension schemes.
The cuts to the basic rate of tax, to VAT and to dividend tax have all been scrapped while the IR35 reforms will now go ahead, after the government previously committed to repeal the off-payroll rules.
Responding to Hunt's announcement, sterling has continued to rise against the dollar and is up 1.19 per cent today, now sitting at $1.13.
At its lowest point during this month's turmoil, the pound sat at $1.07.
Meanwhile gilt yields have fallen today with the 10-year gilt yield falling by 0.28 per cent to 4.04 per cent. Late last month the 10-year gilt yield was 4.5 per cent.
However gilt yields remain far higher than they were before the "mini" Budget. A month ago, the yield on a 10-year gilt was 3.16 per cent.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: "Jeremy Hunt has achieved the first step in returning some semblance of credibility to the government’s economic reputation as the bond markets have welcomed his announcement.
"However, that credibility is still incredibly fragile and much of the government’s next moves will depend on the OBR forecasts being produced at the end of this month. They won’t make for pretty reading but following this announcement should give investors some confidence that the UK’s finances are on a more stable footing.
"All eyes now turn to the Bank of England and its next policy move. Hunt’s statement should reduce the need for the BoE to raise rates as aggressively as it might have done, but it is still struggling to bring inflation down and as such will need to act in some shape or form."
damian.fantato@ft.com
