Pound rebounds and government borrowing costs fall as Hunt fiscal statement looms
The pound and UK government bond yields have recovered in anticipation of a key statement from the new chancellor tasked with sorting out the fallout from the government’s disastrous mini-budget.
Sterling had fallen to a record low against the dollar at the end of September, after the short-lived then chancellor Kwasi Kwarteng unveiled the biggest programme of tax cuts for 50 years.
Mr Kwarteng, who was sacked on Friday after just 38 days in the job, paid the price for a giveaway that called into question the government’s economic credibility on financial markets.
The mini-budget led not just to a collapse in the value of the pound, but also prompted a surge in borrowing costs – forcing an unprecedented intervention by the Bank of England (BoE).
However, following the prime minister’s announcement on Friday that Mr Kwarteng had been sacked and that corporation tax would rise to 25% from April next year instead of being kept at 19%, there was a partial recovery for the UK currency and bond yields.
Mr Kwarteng’s replacement, former foreign and health secretary Jeremy Hunt, has since promised to win back the confidence of the financial markets by fully accounting for the government’s tax and spending plans.
Sterling gained 1.1% to hit $1.1294 on Monday at one stage and also made strides versus the euro when the Treasury revealed that Mr Hunt would deliver key parts of a medium-term plan later on Monday in support of “fiscal sustainability”.
The statement – released before UK financial markets opened – added that Mr Hunt met the BoE governor Andrew Bailey and the head of the Debt Management Office on Sunday night to brief them on the plans.
There would be a select few announcements brought forward from the medium-term fiscal plan that is due to be revealed on 31 October.
The bond markets also suggested an easing of the recent pressure, given additional concerns in some quarters after the BoE on Friday concluded its emergency gilt market support on Friday.
The Bank issued its own statement ahead of the open to say that its operations, aimed at helping pension funds battling higher collateral demands, had enabled a “significant increase in the resilience of the sector”.
It reiterated that other liquidity options remained available, if needed, to ensure smooth financing.
Any rises in government borrowing costs, through a gilt yield rise, would have reflected additional jitters.
‘Unruly pupils are still scheming to oust the beleaguered head’
But there was a downwards shift, with both the UK 20 and 30 year yields falling by more than 30 basis points in early trading.
CHANCELLOR SECURES SOME BREATHING SPACE
When markets closed on Friday, after a dramatic day that saw a chancellor sacked and a totemic economic policy junked, the verdict was troubling:
A sell off UK gilts had gathered pace before, during and after the Prime Minister’s press conference, and the closing bell could not come fast enough.
After Jeremy Hunt spent the weekend signalling a dramatic change in course to reassure the investors on whom confidence in the UK economy rests, the Treasury was plainly not going to take any chances on Monday morning.
That explains the pre-dawn announcement that the new chancellor would be bringing forward U-turns on Kwasi Kwarteng’s calamitous mini-budget.
The aim was to secure breathing space, a stay of execution from markets that could, had they continued to sense vulnerability, deepened the crisis and ended the fiscal repositioning before it began.
The need was all the more acute as this was the first Monday in a fortnight when the Bank of England was not acting as backstop to the gilt markets, its emergency intervention having been withdrawn on Friday, in part triggering the political meltdown that ended the week.
The response was precisely the one the Treasury and Downing Street wanted to see; the first move of UK gilt yields, a measure of the effective cost of Government borrowing, was down.
Yields on 10, 20 and 30-year bonds all moved down as trading began in London at 8am, a trend that if it lasts between now and 31st October, when the Office for Budget Responsibility delivers its calculation of the state of the public finances, has immense political and practical implications.
The gilt markets matter not just because they are an expression of confidence in a nation’s creditworthiness. Government bonds are the mechanism through which states borrow, and the less faith there is in your plan, the more it costs.
And those borrowing costs are central to the calculations the Treasury and the OBR are making. The UK has £2.4trn of debt and under the Truss plans was going to take on tens of billions more to fund tax cuts.
With market confidence evaporating (and gilt yields rising) the cost of that borrowing, old and new, rose. If yields can be brought down the cost of borrowing will fall, cutting billions from one side of the government’s balance sheet, which could in return reduce the need for cuts.
The next hours and days will be pivotal.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said other risk factors remained at play despite the initial recovery.
”New chancellor Jeremy Hunt has the air of a troubleshooting teacher brought in to turn around a failing school and faces his first big presentation test today with an emergency budget plan wheeled out to try and calm financial markets.
“This is all part of his charm offensive to instil confidence in the government’s ability to be fiscally responsible, but behind him unruly pupils are still scheming to oust the beleaguered head,” she wrote.
Can Truss remain PM?
It reflects a renewed focus on whether Ms Truss, the architect of the government’s initial economic strategy, can remain in the job.
A Tory MP told Sky News: “The idea that the prime minister can just scapegoat her chancellor and move on is deluded.
“This is her vision. She signed off on every detail and she defended it.”
The Conservative Party is now on its fifth chancellor in the past three years – Mr Hunt, Mr Kwarteng, Nadhim Zahawi, Rishi Sunak and Sajid Javid.
The government has signalled that plans to bring a second runway at Gatwick into regular use will get the green light if environmental conditions are met.
Transport Secretary Heidi Alexander said she was “minded to approve” the airport’s plans but the deadline for a decision had now been pushed back until the end of October.
The main stumbling blocks facing Gatwick’s proposals are related to its provisions for noise prevention and public transport.
The Planning Inspectorate had made recommendations in those two areas after initially rejecting the scheme.
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The airport welcomed the government’s statement but did not say whether it saw a need to adjust its plans to meet the conditions.
Gatwick has until April 24 to respond to the new proposals.
The northern runway already exists at the airport parallel to the main one, but cannot be used at the same time as it is too close.
It is currently limited to being a taxiway and only used for take-offs and landings if the main one has to shut.
Gatwick wants to move it 12 metres further away to solve this problem.
The northern runway is currently only used for emergencies or where the main one is closed. Pic: PA
It says being able to run both at the same time would allow around 100,000 more flights per year and create 14,000 jobs.
Gatwick says the £2.2bn project would not need government money, would be 100% privately funded, and could be complete by the end of the decade.
The airport is already the second busiest in the UK, and the busiest single runway airport in Europe.
Campaigners argue the additional traffic would be catastrophic for the environment and the local community in particular.
Today’s update comes after the chancellor said last month the government also supported a third runway at Heathrow as part of its wider effort to bolster UK economic growth.
However, the formal planning process is still to take place.
Gatwick’s additional runway would be unlikely to open until the end of the decade, assuming any legal challenges were swiftly overcome.
A government source told Sky News: “The transport secretary has set out a path to approving the expansion of Gatwick today following the Planning Inspectorate’s recommendation to refuse the original application.
“This is an important step forward and demonstrates that this government will stop at nothing to deliver economic growth and new infrastructure as part of our Plan for Change.
“Expansion will bring huge benefits for business and represents a victory for holidaymakers. We want to deliver this opportunity in line with our legal, environmental and climate obligations.
“We look forward to Gatwick’s response as they have indicated planes could take off from a new runway before the end of this Parliament.”
Stewart Wingate, Gatwick’s chief executive, said: “We welcome today’s announcement that the Secretary of State for Transport is minded to approve our Northern Runway plans and has outlined a clear pathway to full approval later in the year.
“It is vital that any planning conditions attached to the final approval enable us to make a decision to invest £2.2bn in this project and realise the full benefits of bringing the Northern Runway into routine use.
“We will of course engage fully in the extended process for a final decision.”
He added: “We stand ready to deliver this project which will create 14,000 jobs and generate £1bn a year in economic benefits. By increasing resilience and capacity we can support the UK’s position as a leader in global connectivity and deliver substantial trade and economic growth in the South East and more broadly.
“We have also outlined to government how we plan to grow responsibly to meet increasing passenger demand, while minimising noise and environmental impacts.”
A spokesperson for campaign group Communities Against Gatwick Noise Emissions (Cagne) responded: “We welcome the extension by the secretary of state until October as she has obviously recognised the many holes in the Gatwick airport submissions during the planning hearings.
“Cagne do not believe Gatwick has been totally up front with their submissions, and the planning hearings left so many questions unanswered.”
Greenpeace UK’s policy director, Doug Parr, said of the process ahead: “By approving Gatwick’s expansion the government will hang a millstone the size of a 747 around the country’s neck.
“Such a decision would be one that smacks of desperation, completely ignoring the solid evidence that increasing air travel won’t drive economic growth. The only thing it’s set to boost is air pollution, noise, and climate emissions.”
Nvidia has signalled no drop in demand for its flagship chips among big artificial intelligence (AI) spenders despite the low-cost challenge posed by Chinese rival DeepSeek.
The leading AI chipmaker said it expected Blackwell sales to continue to grow after its latest earnings beat market expectations.
Nvidia forecast revenue of around $43bn (£34bn) for its first quarter after achieving a figure of $39.3bn (£31bn) over its last three months – up 12% from the previous quarter and 78% from one year ago.
Just a month ago, its shares took a hammering when it emerged DeepSeek‘s primary chatbot, which uses lower-cost chips, had become the most popular free application on Apple’s App Store across the US.
Nvidia’s shares lost almost $600bn in market value in a day.
It also prompted investors to question whether the AI-led stock market rally of recent years was overblown.
There was anxiety ahead of Nvidia’s earnings report though shares only fell fractionally in after-hours dealing.
Market analysts suggested demand from Microsoft, Amazon and other heavyweight tech companies racing to build
AI infrastructure remained robust, given Nvidia’s revenue guidance even though the bulk of it is accounted for through data centres.
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Who will win the AI battle?
Read more: What is DeepSeek?
Nvidia founder Jensen Huang said Nvidia has ramped up the massive-scale production of Blackwell and achieved “billions of dollars in sales in its first quarter”.
“Demand for Blackwell is amazing as reasoning AI adds another scaling law – increasing compute for training makes models smarter and increasing compute for long thinking makes the answer smarter.
“AI is advancing at light speed as agentic AI and physical AI set the stage for the next wave of AI to revolutionise the largest industries,” he said.
Derren Nathan, head of equity research at Hargreaves Lansdown, said of the report: “The longer-term investment case for the driver of the AI train is looking difficult to pick holes in, with Meta’s $200bn just one of the latest mega investments in data centres to be unveiled recently.
“By virtue of scale, growth may be slowing a little but upgrades to analysts full-year numbers can be expected off the back of today’s results. At a around 30x forward earnings, the valuation still doesn’t look overcooked.”
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