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The tax, borrowing and spending plans announced by chancellor Rachel Reeves in Labour's first budget in more than 14 years could impact the trajectory of interest rates, experts have said.

In Wednesday's autumn statement, Reeves said she would be raising taxes by ￡40bn, to help restore "stability" in public finances. This included an increase in national insurance contributions for employers, as well as a rise in capital gains tax rates.

Reeves' budget plans also raised spending by around ￡70bn a year over the next five years, with borrowing also increasing by ￡32.3bn a year on average.

The Office for Budget Responsibility said its in economic and fiscal outlook, released on Wednesday, that the budget policies would push up the consumer price index inflation measure by around half a percentage point at their peak. This meant that CPI was projected to rise to 2.6% in 2025 but then "gradually fall back" to the target of 2%, the OBR said.

Compared to its March forecast, the OBR said inflation was expected to be 1.1% higher in 2025 and 0.6% higher in 2026, "driven mainly by greater-than-expected persistence in wage growth and the impact of the near-term fiscal loosening in this budget".

"We estimate that budget policy measures increase inflation by 0.4 percentage points at their peak effect in 2026, mainly reflecting the impact of the excess demand generated by the fiscal loosening and some pass-through of employer NICs to consumer prices," the OBR said.

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Bond investors are continuing to dump gilts this afternoon after Reeves’ borrowing plans proved to be higher than expected, which is rapidly generating a sterling risk premium.

Alongside a jump in gilt yields, the pound immediately swung 0.6% to the downside this afternoon.

Kyle Chapman, FX market analyst at Ballinger Group, said:

Shares in Microsoft (MSFT) were more than 5% in the red in New York despite the tech company posting quarterly results that beat expectations after the close on Wednesday.

In its fiscal first quarter, Microsoft reported earnings per share of $3.30 (￡2.54), which was ahead of analyst forecasts of $3.10, according to consensus estimates compiled by Bloomberg. Revenue of $65.6bn also topped expectations of $64.5bn.

These figures were also up compared with the same quarter last year, when Microsoft posted earnings per share of $2.99 and revenue of $56.5bn.

In its cloud business, Microsoft said commercial revenue which includes cloud services sales, came in at $38.9bn compared to expectations of $38.1bn. The company's Intelligent Cloud segment, which includes its Azure business, brought in $24.1bn in the quarter, up 20% year over year.

Matt Britzman, senior equity analyst at Hargreaves Lansdown (HL.L), said:

US Inflation on the Federal Reserve’s preferred measure has fallen to its lowest level since early 2021.

The personal consumption expenditures price index fell to an annual rate of 2.1% in September, down from 2.3% in August, according to the Bureau of Economic Analysis.

The closely watched measure of US inflation slipped to within striking distance of policymakers’ target.

However core PCE inflation, excluding volatile food and energy, remained at 2.7%, against expected that it would also fall.

Gold prices (GC=F) edged lower on Thursday, after briefly touching a new all-time high. However, safe-haven demand remains strong, as traders seek refuge from the uncertainty surrounding the US election outcome.

Ricardo Evangelista, senior Activ Trades analyst, said:

Bitcoin (BTC-USD) approached its all-time high of over $73,000, trading above $72,400 (￡55,765) on Thursday, with a weekly gain of over 8%. This price rally follows record-breaking inflows into BlackRock’s iShares Bitcoin Trust (IBIT) spot ETF.

On Wednesday, BlackRock (BLK) recorded its largest daily spot exchange-traded fund (ETF) inflow to date, totalling $872m, according to Sosovalue data. This surpassed the previous IBIT record of $849m, set on 12 March.

Spot bitcoin ETFs are investment funds that allow people to buy shares representing actual bitcoin held in custody, making it easier for investors to gain exposure to bitcoin without needing to buy and store the cryptocurrency themselves.

Wednesday's inflows bring the cumulative assets under management (AUM) for spot bitcoin ETFs in the US to approximately $72.46bn, a new milestone, with BlackRock’s IBIT alone accounting for over $30bn.

Other US-based bitcoin ETFs also saw inflows, with Fidelity’s FBTC gaining $12.57m in new investments, while Ark Invest and 21Shares’ ARKB, VanEck’s HODL, and Invesco’s BTCO each attracted under $8m. In contrast, Bitwise’s BITB reported a net outflow of $23.89m, and Grayscale’s GBTC had no change in its holdings.

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The government has again reduced its shareholding in NatWest Group (NWG.L), now its stake to 14.81%, halving it since March.

It intends to fully exit its shareholding in the bank by 2025-26, but a retail offer (selling shares to the public) has been ruled out.

A spokesperson for NatWest Group said:

Here's a quick look at the main movers in equity markets this Thursday.

• Coca-Cola HBC (CCH.L) was the standout performer on the FTSE 100 as it upgraded its full-year outlook following a "strong" performance in the first nine months of the year.

• Energy major Shell (SHEL.L) gained as it posted a dip in third-quarter profits, weighed down by lower oil prices, although the decline was less steep than feared. Adjusted earnings before interest, tax, depreciation and amortisation fell 5% on the second quarter, to $16.01bn, while adjusted earnings — Shell's definition of net profit — declined 4% to $6.03bn. That was notably better than the $5.36bn expected by analysts, however.

• Smith & Nephew (SN.L) tanked as it slashed its full-year sales guidance after weaker-than-expected trading in China.

• Kainos (KNOS.L) tumbled as the IT services company said full-year revenues would be "moderately below" current market consensus. It said its Digital Services and Workday Services divisions continue to be affected by the macroeconomic environment and related delays in client decision-making.

• Spectris (SXS.L) was also firmly in the red after saying it expects to deliver full-year adjusted operating profit of around 200m, which is below consensus expectations.

• Haleon (HLN.L) lost ground as it reported a 0.6% decline in reported revenue for the third quarter.

• Online grocery retailer Ocado Group (OCDO.L) nudged lower as it confirmed speculation that it is appointing former Microsoft exec Adam Warby to replace chair Rick Haythornthwaite, who announced his resignation six months ago. Warby, who is currently the chair of Nasdaq-listed executive search and management consultancy Heidrick & Struggles International, will join the company on 1 December.

The pound (GBPUSD=X) pared back losses on Thursday, trading around $1.2982 during early European trade. Sterling plunged against the dollar in the previous session, following the release of the UK's autumn budget and the latest GDP figures from the United States.

The pound was up by just 0.1% as the initial reaction to the Labour government's first budget was far from positive. The budget introduces ￡40bn in tax increases aimed at bridging public finance gaps and bolstering public services.

A key aspect of the budget is an increase in national insurance contributions for employers. Philip Shaw, an economist at Investec, said that the unveiling of these fiscal measures led to a nervous response from UK markets.

“When the numbers were seen in plain view, UK markets reacted nervously. Having initially fallen, 10-year gilt yields jumped by as much as 20 basis points at one stage while sterling sold off,” he stated.

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Manufacturing activity expanded in October in China for the first time since April.

According to figures released by the National Bureau of Statistics, the official purchasing managers' index rose to 50.1 from 49.8 in September, beating expectations for a reading of 49.9.

A reading below 50.0 indicates contraction, while a reading above signals expansion.

The sub-index for production printed at 52.0 for October, while the new orders index came in at 50.0.

The index for raw materials inventory was 48.2, remaining in contraction territory, while the employment index was 48.4.

Meanwhile, the non-manufacturing PMI rose to 50.2 in October from 50.0 in September.

Lynn Song, chief economist, Greater China, at ING, said:

Eurozone inflation hit 2.0% in October, up from 1.7% in September, aligning with the European Central Bank’s (ECB) target.

October’s reading came in above consensus expectations, largely driven by a slower decline in energy prices, alongside a faster increase in food, alcohol, and tobacco prices.

However, services and core inflation, both key gauges of domestic price pressure, remain elevated, adding to the conundrum faced by the ECB.

Unemployment also dropped to a fresh record low for the euro area, at 6.3%.

Sara Pineros, economist at Cebr, said:

The UK property market gained momentum in September, with transaction numbers rising in line with predictions for an autumn boost.

After a slight dip in August, buyer activity rebounded, according to HMRC, with transactions 9% higher than this time last year.

Nicky Stevenson, managing director at national estate agent group Fine & Country, said:

AB InBev (ABI.BR), the brewer behind Budweiser and Stella Artois, has suffered from a sales slowdown in China which knocked revenue, it said.

The firm posted a 2.4% decline in beer sales over the third quarter of the year, compared with 2023.

Meanwhile, the Camden Town Brewery owner said that said revenues were “flattish” in Europe, as customers buying more premium brands helped to offset lower sales volumes.

Total revenues rose 2.1% during the period, partly driven by price increases.

Uncertainty around the tight US presidential election race is weighing on markets, with stocks in Europe, as well as the US, heading lower.

The pan-European Stoxx 600 (^STOXX) has been dragged lower by poor company results, falling to its lowest level in nearly two months.

It has lost 0.8% so far today , and is on track for its worst month in a year.

Daniela Hathorn, senior market analyst at Capital.com, told Reuters:

Think tank the Resolution Foundation has today published its analysis of the Labour budget, giving it a guarded welcome.

It said the UK budget has delivered “short-term living standards pain in the hope of long-term growth-based gains”.

Here are the details:

• Britain’s National Health State. Health alone accounts for 40% of the overall ￡35bn real increase to day-to-day public service spending between 2023-24 and 2025-26. As a result, the 2025-26 health budget will account for 42% of all departmental spending, up from 31% in 2007-08.

• A tight Spending Review. The decision to frontload public service spending increases into this year and next have created a tough climate for the spending review next spring. Setting a spending envelope that increases by just 1.3% a year in day-to-day spending on public services between 2025-26 and 2029-30 implies ￡10.8bn of real per person cuts to unprotected departments, sending their funding back to 2015-16 levels.

• No margin for error. Having chosen a new debt rule that gives her more headroom, the chancellor has already used it up, with just ￡9.9bn to spare against the current balance rule, and ￡16bn against the public sector net financial liabilities rule. Even a modest economic downturn could force the chancellor to come back for more tax rises at a future fiscal event.

• Tax and benefit changes fall on everyone’s shoulders. The combined impact of benefit cuts, employer national insurance rises and consumption tax changes are felt evenly across the income distribution. The poorest half of households face a 0.8% reduction in their annual income on average, while the richest half face a 0.6% decrease. However, increases to capital gains and inheritance taxes (not included in this modelling) are more progressive, so wealthy households will face the largest cash impact overall.

Mike Brewer, interim chief executive of the Resolution Foundation, said:

As expected, the Bank of Japan (BOJ) has left interest rates unchanged at ultra-low levels, saying it was monitoring global economic developments and any risks to fragile domestic recovery.

The yen gained on the back of the central bank’s decision, trading close to 153 per dollar.

Kazuo Ueda, the BOJ governor, said:

Rachel Reeves has said she does not want to repeat the ￡40bn tax rises she implemented in her first budget “ever again”.

Defending the budget yesterday, she told Times Radio:

She also told BBC Breakfast:

Oil major Shell (SHEL.L) reported a slight fall in profits in the third quarter to $6bn (￡4.62bn), but this still came in strongly ahead of expectations, with the company declaring a further buyback of shares.

Adjusted earnings fell by 4% on the second quarter from nearly $6.3bn and were down from $6.2bn compared to the third quarter of 2023.

However, the figures beat analyst expectations of a $5.36bn profit, according to Reuters.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $16bn in the third quarter, down 5% from $16.8bn in the previous three months and $16.3bn for the same period last year.

Shell attributed the dip in earnings to lower refining margins, lower realised oil prices and higher operating expenses.

Operating expenses were up 7% in Q3 to nearly $9.6bn, compared to $8.9bn in the second quarter, but were lower than the $10.1bn Shell reported in the third quarter last year.

The oil giant announced a share buyback programme of $3.5bn and a dividend of $0.344 per share for the third quarter.

Shares in Shell were up 1% in early trading on Thursday.

Paul Johnson, director of The Institute for Fiscal Studies (IFS), has said that Labour’s spending plans “don’t look like the generous ones they immediately appear to be," warning British households to brace for more tax rises.

Speaking on the BBC’s Today programme, he said: