UK budget leads to modest market stability and relief for hospitality sector

One day after Chancellor John Healey presented his first budget, UK government borrowing costs eased, with the 10-year gilt yield slipping 3.7 basis points to 5.308%. The market reaction was muted; the pound edged down to $1.3310 and the FTSE 100 rose 0.4%, while Shell posted a 3.2% gain after its quarterly profit doubled.

Capital Economics chief markets economist Jonas Goltermann said the "no-harm" budget kept gilts out of the firing line, noting that the gradual fiscal tightening and adherence to expectations helped contain the fiscal risk premium. Analysts expect gilt yields could continue to fall if the Bank of England adopts a less hawkish stance.

The budget froze business rates for hospitality, leisure and retail firms at current levels until 2028, a move welcomed by Whitbread, the owner of Premier Inn. Whitbread expects its business-rates bill to be £45-£60 million lower than previously projected by fiscal 2029, reducing the anticipated increase to £7.5-£12.5 million for the coming year. Chief executive Dominic Paul said the measures would mitigate the impact of the previous two budgets on the sector and support the company’s five-year plan.

Healey also announced tax increases on banks, gambling, savers and landlords, alongside tighter VAT rules for online marketplaces, and a £4.4 billion cost-of-living support package. The Resolution Foundation criticised the support as poorly targeted, noting that the poorest households would receive only marginally more aid than the richest.

In related commentary, Lloyds Banking Group’s chief financial officer William Chalmers called the temporary increase in the bank levy a "temporary measure" and expressed hope it would be withdrawn to maintain the sector’s competitiveness.

Overall, the budget’s modest fiscal adjustments appear to have stabilized financial markets while offering relief to parts of the hospitality industry.