Global markets took a sharp hit on Thursday, and the pound weakened as investors reacted to the UK’s autumn Budget announcement from the day before. The new spending plans, introduced by the Chancellor Rachel Reeves, have triggered a lot of nervousness in the financial world, leading to major drops in global stock prices and a decline in the value of the pound.

London’s FTSE 100 Takes a Hit

In London, the FTSE 100 index—one of the biggest stock indexes in the UK—closed down by 49.53 points, or 0.61%, landing at 8,110.1. This decrease reflects the uncertainty that’s brewing in the UK economy after the government’s latest Budget. Big names in the homebuilding industry, including Persimmon, Taylor Wimpey, and Barratt Redrow, were among the hardest hit. Many investors had been expecting interest rates to drop sooner, which would help boost the housing market. But with inflation predicted to stay high, those expectations are now on hold.

Inflation Predicted to Stay High

The Office for Budget Responsibility (OBR), a government body that forecasts economic conditions, has predicted that inflation in the UK will remain above the Bank of England’s target of 2% until at least 2029. High inflation generally means that prices of goods and services will keep rising, affecting both consumers and businesses. This outlook has spooked investors, who now believe that the Bank of England will have to keep interest rates high for a longer period to control inflation.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said, “Fresh nervousness has crept into markets about the prospects for the UK economy, just a day after Labour presented its first Budget in 14 years.” She pointed out that the initial reaction to the Budget was relatively calm, but as investors reviewed the details, they started to worry about the potential long-term effects.

Interest Rate Cuts on Hold

One of the biggest impacts of this news is on interest rates. Many financial experts had been hoping that the Bank of England would cut rates soon, which would help businesses and make borrowing cheaper for consumers. However, because the new Budget suggests inflation could stay high, expectations for interest rate cuts have been pushed back. Markets now don’t expect the rate to fall below 4% until 2026.

On Thursday, the yield on a 10-year UK government bond—a key indicator of the cost of borrowing for the government—rose to 4.568%, the highest level seen since August 2023. Higher yields mean the government will pay more in interest to borrow money, adding to its expenses. These changes are likely to make investors more cautious, as high-interest rates can slow down economic growth and reduce company profits.

Pound Drops Against Dollar and Euro

The pound also felt the impact of the budget announcement, dropping by about 0.75% to $1.286, its lowest value in more than two months. It also fell by around 0.8% against the euro, bringing it to 1.185 euros. A weak pound means that British imports become more expensive, which could contribute to even more inflation. This news only adds to the concerns for both UK consumers and businesses.

European Markets Also Feel the Heat

The reaction wasn’t limited to the UK. Major stock markets in Europe, including the Cac 40 in Paris and the Dax in Frankfurt, also closed lower. The Cac 40 fell by 1.05%, while the Dax dropped 0.93%. These dips show that the uncertainty sparked by the UK Budget is affecting global markets, as other countries often feel the effects of economic changes in major economies like the UK.

Tough Day for US Tech Stocks

Across the Atlantic, the stock market in the United States also had a rough day. Key tech companies, including Meta (the parent company of Facebook) and Microsoft, saw a drop in their share prices. By the time European markets closed, the S&P 500 index was down by 1.4%, and the Dow Jones had dropped by 0.5%. Although the UK Budget isn’t the only reason for the tech sector’s downturn, the nervousness in global markets contributed to the cautious mood in the US.

Shell’s Strong Earnings Offer Some Good News

Amidst all the gloom, there was a bright spot for energy giant Shell, whose shares rose on Thursday. The company announced impressive earnings for the last quarter, posting an adjusted profit of $6 billion (around £4.6 billion). This is 4.5% higher than their gas production from last year, a positive result that helped lift their stock by 3.5%. Shell’s strong performance comes as the government recently confirmed a windfall tax on North Sea oil and gas firms, which adds extra tax on their high profits.

AB InBev Struggles in China

On the flip side, shares in AB InBev, the world’s largest brewer and the maker of Budweiser and Stella Artois, declined by 5.8%. The company reported weaker beer sales in the recent quarter, largely due to slowing demand in China. However, the company did manage to report a 7.1% increase in earnings overall for the quarter, thanks to efficient production processes that helped cut costs. Despite this, the news wasn’t enough to reassure investors, who remain worried about the company’s future sales.

What’s Next?

The UK Budget announcement has clearly stirred up the markets, and it’s uncertain how long this period of volatility will last. The prospect of inflation staying above target for the next few years is concerning, as it suggests that interest rates will likely remain high. This could put further pressure on consumers, who are already facing higher costs for essentials like food, housing, and energy. Meanwhile, businesses that depend on low borrowing costs may need to brace themselves for a slower economic recovery.

Investors will be keeping a close eye on how the Bank of England responds to this economic outlook. If inflation continues to rise, it may lead to even higher interest rates, which could impact everything from mortgages to car loans. With the pound dropping and stocks facing significant declines, it’s a challenging time for both investors and ordinary citizens who may feel the effects of these shifts in the financial landscape.

In the end, as global markets react to the UK’s latest spending plans, the immediate impact is clear: more cautious investors, a weaker pound, and rising yields on government bonds. Only time will tell if the UK can manage this period of high inflation and navigate the economic challenges ahead. For now, the Budget’s aftershocks are being felt across the globe.