Global markets saw a rough day as stocks slid and the pound weakened following the UK’s autumn Budget announcement. London’s FTSE 100, a key index of major UK companies, fell by 49.53 points or 0.61%, closing at 8,110.1. Investors were on edge as they reacted to Labour’s first Budget in 14 years, presented by Rachel Reeves, which sparked big changes in UK economic forecasts and investor expectations.

UK Stocks Hit, Housebuilders Tumble

After the Budget, certain sectors like housebuilding took a harder hit. Stocks of major UK housebuilders—Persimmon, Taylor Wimpey, and Barratt Redrow—were among the largest decliners. The fall came as the chances of interest rate cuts were reassessed. With the new spending and tax plans in place, hopes for lower rates were delayed, a move that directly affects property and homebuilding markets.

The government’s official forecaster, the Office for Budget Responsibility (OBR), shared that inflation, the rate at which prices rise, would likely stay high in the UK for years. They predict it may not drop below the Bank of England’s 2% target until 2029, meaning the cost of living will likely remain elevated for some time. This information concerned investors, who fear that keeping inflation high could make it harder to cut interest rates, delaying potential economic relief.

Investor Concerns Grow

The Budget stirred up new worries among investors, according to Susannah Streeter, head of money and markets at Hargreaves Lansdown. She noted that, initially, markets remained calm, but as investors reviewed the government’s big tax and spending plans, anxiety grew. “Expectations for interest rate cuts have been scaled back,” Streeter said. This shift came as it became clear that these new plans could drive up inflation in the coming years, making rate cuts less likely.

At present, interest rates in the UK are higher than investors would like, and many had hoped for rate cuts sooner rather than later. However, with the Budget’s projections, it now seems that rates might stay high for longer. Current projections suggest that rates may not drop below 4% until 2026, which is a disappointment for businesses and consumers hoping for some financial relief.

Government Borrowing Costs Surge

One of the clear signs of market jitters was the rise in the yield, or interest rate, on a 10-year government bond. This yield is an important indicator because it represents the cost of government borrowing. On Thursday, the yield jumped to 4.568%, its highest level since August 2023. Higher yields mean it’s more expensive for the government to borrow money, which could limit its ability to spend on public services and infrastructure.

Pound Weakens to New Lows

The pound also took a hit on Thursday, dropping to its lowest level in over two months. It was down by about 0.75% against the US dollar, bringing it to $1.286, and by 0.8% against the euro, to €1.185. A weaker pound makes it more costly for UK consumers to buy foreign goods, and it affects UK companies that import materials. This decline shows that the international markets are worried about the UK’s future economic path.

Global Impact: Markets in Europe and the US

The Budget effects weren’t limited to the UK; they impacted major markets across Europe as well. In Paris, the Cac 40 dropped by 1.05%, and Frankfurt’s Dax was down 0.93% at the close. These declines suggest that investors globally are concerned about the ripple effects of the UK’s new Budget on international trade and economies.

Across the Atlantic in the US, the start of trading wasn’t promising. The S&P 500, which tracks 500 of the largest companies in the US, dropped 1.4%, while the Dow Jones was down 0.5% by the end of the European trading day. Major tech companies, including Meta and Microsoft, saw their share prices drop, adding to the pressure on global markets.

Shell and AB InBev: Mixed Company News

Not all companies had a gloomy day. Energy giant Shell’s shares rose as it reported strong third-quarter earnings, beating expectations. Shell posted adjusted earnings of $6 billion, up from last year, as the company benefited from increased gas production. Shares in Shell went up by 3.5% as investors reacted positively to the news.

The strong earnings report came shortly after the Chancellor revealed plans to raise a windfall tax on North Sea oil and gas companies, which could affect Shell’s future profitability. However, the company’s robust results helped reassure investors for now, showing that it remains strong despite potential new taxes.

On the flip side, things weren’t as bright for drinks company AB InBev, known for brands like Budweiser and Stella Artois. Its shares took a hit after reporting that beer sales had dropped recently, especially in China, where demand has been slower. Despite sales challenges, AB InBev said its earnings were up 7.1% for the quarter due to better cost controls. Still, the news wasn’t enough to keep investors happy, and AB InBev shares closed 5.8% lower.

Major Movers on the FTSE 100

The FTSE 100’s biggest winners and losers highlighted the mixed reactions in the market. Among the top risers were packaging firm DS Smith, which rose by 68.1p to close at 545.5p, along with British American Tobacco, up 47p to 2,695p, and Coca-Cola HBC, up 42p to 2,710p.

Meanwhile, housebuilder Persimmon and medical equipment maker Smith & Nephew were among the biggest losers, with Smith & Nephew dropping 137p to close at 961p and Persimmon falling by 118.5p to 1,467p. These declines reflect the broader concerns among investors about the future of UK businesses amid the new economic policies.

What’s Next for the UK Economy?

The immediate future of the UK economy looks uncertain, with the Budget raising more questions than answers. Investors are now carefully watching inflation rates, interest rate projections, and government borrowing costs to assess how these might affect business activity and consumer confidence in the UK.

With high inflation likely to stick around and interest rate cuts seeming farther off, businesses and consumers alike may face higher costs for longer. And as the government juggles these challenges, it’s clear that the UK’s economic journey will be one to watch in the coming months.

So, with markets reacting strongly and the pound under pressure, all eyes are on the next moves in UK economic policy. Will rates remain high, or can the government ease inflation faster than expected? Only time will tell as we move forward in this new economic landscape.