The FTSE 100 has dipped in early trading as spooked investors brace for Rachel Reeves’ tax-raising Budget.

UK stocks fell as the Chancellor prepares to announce £40bn in measures aimed at stabilising public finances.

The FTSE-100 index at 8:15am was down 40.14 at 8179.47 – a drop of 0.5 percent. As of 8.50am it stood at 8,186.66.

Ms Reeves has been urged to “take the opportunity to boost confidence,” after a halt in growth due to uncertainty surrounding potential tax increases in the lead-up to the Budget.

According to the CBI’s latest growth indicator, private sector activity fell by 4% in the three months to October, reflecting concerns over potential rises in employer National Insurance contributions, just one of a number of anticipated tax increases expected in the Chancellor’s speech.

Bond markets rallied at the start of the day, pushing down government borrowing costs.

However, Peder Beck-Friis, economist at bond trader Pimco, said traders had priced in a “risk premium” on UK debt ahead of the Budget.

The yield on 10-year UK gilts – the return the government promises to pay buyers of its debt – has increased from 3.76% in mid-September to 4.31% on Tuesday, marking its highest closing level since June.

Deutsche Bank analyst Jim Reid said today’s primary focus “will be on how much additional borrowing there is, particularly as just over two years ago, the mini-budget under Liz Truss sent UK markets into turmoil.”

He added: “Key expectations include the new fiscal rules, with Chancellor Rachel Reeves confirming that the Government plans to change its approach to measuring debt to enable additional investment.”

Commitments not to increase income tax or national insurance on employees are likely to see companies hit with a greater share of the burden to help repair the nation’s finances and fund stretched public services.

Changes to borrowing rules will also allow her to pump billions into renewing the UK’s infrastructure and could fund improvements to crumbling schools, hospitals and prisons.

Posting on X this morning, Ms Reeves said: “Politics is about choices. This Labour government chooses investment over decline.”

In the Commons later today, she will tell MPs: “My belief in Britain burns brighter than ever. And the prize on offer to today is immense.

“More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards.”

“And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability.”

Nevertheless, business leaders are nervously awaiting the Budget announcements, with increased levels of the national minimum wage and the prospect of hikes to employers’ national insurance contributions likely to add to labour costs.

A 6.7% increase in the national living wage will see it rise to £12.21 an hour next year.

John Foster, chief policy and campaigns officer at the Confederation of British Industry (CBI), said the national living wage was a “valuable tool” for protecting the incomes of the poorest in society “but with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line”.

“That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.”

Investors fear repeat of Truss era market chaos as UK Budget looms with one major figure sparking concerns over ‘investor backlash’. While it is not known what will be in Chanceller Rachel Reeves’ Budget on October 30, some have suggested it could derail the economy.

Rachel Reeves today submits her tax and spending plans to the Office for Budget Responsibility (OBR), sparking the alert. Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organisations said that in the industry some were worried the upcoming October 30 UK Budget could trigger a repeat – but not of the same scale – of the market chaos that followed Liz Truss’s infamous 2022 mini-budget.

The mini-budget of 23 September 2022 – included £45bn of unfunded tax cuts – and was followed by days of turmoil on the markets, a fall in the value of the pound and rises in the cost of UK government borrowing and mortgage rates.

Mr Green said there were ‘clear signals’ investors were moving away from government debt: “With mounting speculation that she may revise the UK’s debt rules to allow for higher borrowing, there are fears of an investor backlash. In the weeks leading up to the Budget, UK gilt yields—widely seen as a barometer of investor confidence—have surged from 3.75% to around 4.2%.

“This rise, a clear signal that investors are offloading government debt, indicates growing concerns that the Chancellor may prioritize fiscal stimulus over long-term sustainability. The response recalls the shockwaves from Truss’s controversial fiscal plan in September 2022, which triggered a massive sell-off of UK gilts, rattling markets and forcing emergency interventions.”

He explained fears surrounding the upcoming Budget are also evident in currency markets and said: “Sterling, which had been gaining ground earlier in the year, has seen its rally reverse, slipping against both the dollar and euro. Currency traders are increasingly factoring in the potential for increased borrowing, which could put further pressure on the pound in the weeks ahead.”

It points out consumer confidence in the UK fell sharply in September, reflecting growing anxiety about the economy’s trajectory. While inflation has cooled from its previous highs, the impact of elevated interest rates is still hitting both businesses and consumers, leaving little room for fiscal missteps.

On the need for a balancing act Mr Green said: “The need for public investment is clear, but so too is the requirement to maintain market confidence.“ deVere said investors will be watching closely to see if the Chancellor introduces any significant changes to debt rules, and whether those changes come with a credible plan for fiscal responsibility. Markets are extremely sensitive to any signal that borrowing could rise significantly.

“The rise in gilt yields shows that investors are already pricing in the possibility of increased borrowing, and if Reeves doesn’t tread carefully, we could see a repeat, albeit to a lesser degree, of the panic that followed Truss’s mini-budget.”

At Prime Minister’s Questions today Sir Keir Starmer said the Government was stabilising the economy, but he did not say whether he still agreed with Rachel Reeves over whether changing debt rules would be “fiddling the books” ahead of the Budget on October 30. Leader of the opposition Rishi Sunak said: “Before the election his Chancellor said changing the debt target in the fiscal rules would be tantamount to fiddling the figures.

“Does he still agree with the Chancellor?” The Prime Minister said: “This is literally the man who was in charge of the economy, 14 years they’ve crashed the economy. What did they leave? A £22 billion black hole in the economy.

“Unlike them we won’t walk past it. We will fix it. And it’s only because we are stabilising the economy that we are getting the investment into this country. But I still notice he has hasn’t talked about that investment.

“We are powering ahead with clean British energy, we are changing the rules to build 1.5 million homes and returning railways to public ownership, and they’ve got nothing to say about any of this.”

Sir Keir declined to rule out raising employers’ National Insurance contributions as leader of the opposition Rishi Sunak attacked the Prime Minister over personnel changes in No 10. Mr Sunak told MPs: “When (Sir Keir) talks about security at work, once again, it’s one rule for him and another rule for everyone else.

“But I know that not everything or everyone has survived his first 100 days in Government, so can he confirm that when he promised not to raise income tax, National Insurance or VAT, that commitment applies to both employer and employee National Insurance contributions?” The Prime Minister replied: “We made an absolute commitment in relation to not raising tax on working people.

“He, of course, was the expert’s expert on raising taxes. What did we get in return for it? We got a broken economy, broken public services, and a £22 billion black hole in the economy. We’re here to stabilise the economy, and we will do so.”