This morning’s mini budget has elicited quite the reaction in currency and bond markets with the pound and bond market seeing sharp falls, after the Chancellor of the Exchequer unveiled his new fiscal plans. He started with outlining what we already knew about, capping the cost of energy for households and business from October, which he estimated would cost £60bn over the next 6 months, based on recent prices, which means it could cost more or less that amount. The NI increase implemented in April would also be reversed in November at a cost of £17bn. The Chancellor also announced that the increase to corporation tax was being scrapped, which had been widely expected. The reports of a cut in stamp duty also turned out to be true, with the rate for first time buyers raised to £425k from £300k, while the basic rate was raised from £125k to £250k. It was also announced that the reduction in income tax to 19%, which was slated for 2024 under Sunak, would be brought forward to next year, while in a bold move, the top rate of 45% was being scrapped.  The cap on banker’s bonuses was also lifted, while alcohol duty rates are to be frozen from February 2023. There was disappointment from business about the continued failure to tackle the thorny issue of business rates reform, and which are expected to rise by 10% next year. If there was any doubt about how much all of this would cost it came in the form of the debt management office who announced that they would be issuing £193.9bn in gilts, this year, a rise of £62.4bn, to fund the additional spending. It is this extra borrowing that appears to be spooking bond markets, and while the Chancellor was at pains to insist that this would help to kick start a plan to achieve a 2.5% GDP target, markets aren’t buying it, with moves in UK gilt yields also prompting contagion into bond markets in Europe and the US.  Equity markets are also plunging on concerns that this package could further push inflation even higher, and thus make it more difficult to bring back down. Bond markets slid sharply on the back of the announcement of this new issuance with the 5-year gilt yield surging through 4%, a record one day rise, with 2 year and 10-year yields not too far behind. With the pound sliding sharply, hitting a new 37 year low against the US dollar in the process, just above 1.1000, and opening the possibility of a move below 1.1000 towards the 1985 lows at 1.0500. The risk of more aggressive rate hikes in November has risen sharply with markets pricing the possibility of 100bps at the next meeting.