UK government backs off tax cuts, stock market tumbles to 18-month nadir

UK government led by Liz Truss backed off quickly on Monday from its highest-income tax cuts plans after widespread popular criticism and great upheaval in the financial markets. 

Such an important change to the massive financial stimulus plans by the UK government had a quick impact on London's stock markets, with the Financial Times index falling to 18-month lows.

The new plans already caused a huge shakedown in global markets with the pound tumbling to record lows against dollar, while UK 10-year treasury yields rose to 14-year highs. 

Government Backing Down

UK Treasury minister Kwasi Kwarteng said the government will back off plans to cut the highest-income bracket taxes valued at 45%.

He asserted the government's plan to push UK economy to growth remains solid despite latest modifications, while noting the government is coming up with a new more detailed plan by November. 

Bank of England

After the spike in UK 10-year treasury yields to 14-year highs and the collapse of the pound, the Bank of England was forced to intervene and launch emergency operations to repurchase bonds and stabilize the market. 

BoE bought over a billion pounds worth of government bonds on September 28, and asserted its commitment to keep buying up officials bonds until October 14 as needed. 

Such immediate intervention tanked long-term treasury yields in the UK, and also tanked US 10-year treasury yields, in turn boosting the pound against dollar.

The BoE also said it's ready to purchase over 20-year traditional bonds in secondary markets with rates that might reach 5 billion pounds initially for each auction.

UK Stocks

The Financial Times index fell 1.4% today to 6,797, the lowest since April 2021 amid a heavy selloff and risk aversion.

Such losses came about amid renewed concerns about UK economic performance following the latest revisions to Liz Triss's budget plans.