In a significant policy reversal, Chancellor Rachel Reeves is set to abandon plans to increase income tax in her upcoming November budget, breaking away from one of Labour's key manifesto commitments.
Budget U-turn on taxation
The Chancellor had previously informed the Office for Budget Responsibility about intentions to raise income tax, but the Guardian has confirmed these measures have now been ditched. According to the Financial Times, which first reported the story, Reeves may instead consider adjusting tax thresholds - a move likely to be perceived as an income tax increase by stealth.
This dramatic U-turn leaves the Treasury facing significant challenges in addressing what is expected to be a multibillion-pound shortfall in public finances. The financial pressure has been exacerbated by weaker productivity figures and reversals on other policies, including cuts to winter fuel allowances and disability benefits.
China's economic challenges mount
Meanwhile, fresh economic data from China reveals concerning trends in the world's second-largest economy. Industrial output grew by just 4.9% year-on-year in October, according to the National Bureau of Statistics, marking the weakest annual growth pace since August 2024.
This represents a significant slowdown from September's 6.5% increase and falls short of the 5.5% growth forecast by Reuters analysts. The manufacturing sector, crucial to China's export-driven economy, shows clear signs of strain.
Consumer spending indicators also paint a worrying picture. Retail sales expanded by only 2.9% in October, the poorest performance since August last year, down from a 3.0% rise in September. This key measure of consumer confidence and domestic demand continues to disappoint.
Global economic implications
The dual developments in UK fiscal policy and Chinese economic performance create a complex backdrop for global markets. Reeves now faces the challenge of identifying alternative revenue sources to fill the substantial gap in public finances without breaking manifesto promises.
In China, policymakers in Beijing confront mounting pressure to implement stronger support measures for their struggling economy. The nation faces additional headwinds from ongoing trade tensions with the United States and persistently weak domestic consumer demand.
Market watchers are also anticipating a second-quarter update from Jaguar Land Rover later this morning, while European economic data including the Eurozone trade balance for Q3 and revised GDP figures are due at 10am GMT.
