In a bid to calm financial markets the new chancellor Jeremy Hunt has rowed back (17 October) virtually all the proposed tax cuts in the mini budget while the cap on energy bills will now only last until April 2023 rather than for two years.

Long-dated UK gilt prices surged 5% higher as yields dropped from 4.8% on 14 October to 4.4% while the 10-year yield fell by 0.4% to 3.9%.

Despite the fall in yields, borrowing costs remain around 1% higher than where they stood before the disastrous mini-Budget was announced on 23 September.

Meanwhile the pound traded higher against the US dollar gaining almost 1% to £1.127, still shy of the £1.145 level before the budget. The FTSE 250, which has a more domestic focus than the FTSE 100, also enjoyed a strong recovery.

Whether the latest U-turn by the government is sufficient to usher in a period of relative calm and restore the confidence of international investors is an open question given the precarious position of the prime minister Liz Truss.

Analysts at Liberum argue gilt yields have the potential to fall further which will be good news for millions of mortgage holders.

They commented: ‘We see this as a major positive to calm markets down and expect gilt yields to decline further in coming weeks.

‘A short-term rally in stock markets, particularly in sectors like homebuilders, real estate and utilities is likely, though it will likely be limited in duration.’

Following Hunt’s statement, shares in housebuilders Barratt Developments (BDEV) and Vistry (VTE) gained around 4% with gains seen across the sector.

Shares in British Gas owner Centrica (CNA) traded 3% higher while SSE (SSE) and Drax (DRX) added 1% apiece.

WHY THE TROUBLE MIGHT NOT BE OVER

Cutting back energy support to six months from two years means a big shock could be coming for consumers early in 2023.

While real-terms cuts to public services could prompt further industrial action and lead to poorer outcomes for society as a whole.

Research by thinktank Resolution Foundation estimates more than five million households could see their annual mortgage payments increase by an average of £5,100 by 2024 as people move off fixed rate deals.

The study which was released before the move lower in gilt yields estimates around £1,200 is due to changes in interest rate expectations following the mini budget.

Meanwhile the LDI (liabilities driven investment) corner of the pensions market needed a Bank of England intervention to maintain financial market stability.

Independent pension consultant John Ralfe has argued for an urgent investigation into the use of excessive leverage by parts of the pensions market.

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