UK tax backdown bounces stocks and pound sterling

Asian stocks bounced on Tuesday after the UK abandoned a controversial tax cut plan, tentatively improving global sentiment and strengthening bonds and the pound.

Sterling flew up to a nearly two-week high after tax cut plans wreaked havoc on British assets as such plans were not backed by funding.

According to John Briggs, head of economics and market strategy at NatWest Markets, such a sharp change in the exchange rate will not have a big impact on the overall financial situation in the UK.

“(However) investors took it as a signal of at least a partial willingness of the UK government to change its intentions, which caused a disturbance in the markets last week.” - he says.

Despite the relative modesty of emergency purchases made by the Bank of England, investors were encouraged by the stability of the gilt market.