Rachel Reeves’ forthcoming Budget risks unleashing financial chaos on the UK markets similar to that triggered by Liz Truss two years ago, a financial analyst has warned.

The Chancellor is preparing to submit her tax and spending plans to the Office for Budget Responsibility (OBR) in advance of her statement to the House of Commons on October 30.

However, Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory firms, said worry was already spreading in the Square Mile and elsewhere.

He explained: “Markets are acutely sensitive to any indication that borrowing could rise significantly.

“The increase in gilt yields shows that investors are already anticipating the possibility of higher borrowing, and if Reeves doesn’t proceed with caution, we could witness a repeat, though on a smaller scale, of the panic that followed Truss’s mini-budget.”

With increasing speculation that she may revise the UK’s debt rules to permit higher borrowing, there are growing fears of what he called an “investor backlash”.

Mr Green said: “In the lead-up to the Budget, UK gilt yields – widely seen as an indicator of investor confidence – have surged from 3.75% to around 4.2%.

“This uptick, a clear sign that investors are shedding government debt, highlights concerns that the Chancellor could prioritise short-term fiscal stimulus over long-term financial stability.

“The situation evokes memories of the shockwaves triggered by Truss’s controversial fiscal plan in September 2022, which led to a dramatic sell-off of UK gilts, rattled markets, and prompted emergency interventions.”

Concerns around the upcoming Budget are also visible in jittery currency markets, Mr Green pointed out.

He said: “Sterling, which had been strengthening earlier this year, has now reversed course, slipping against both the dollar and the euro.

“Currency traders are increasingly pricing in the risk of higher borrowing, which could exert further downward pressure on the pound in the coming weeks.”

Investors were still mindful of the repercussions of what Mr Green called “poorly judged fiscal policies, as seen under Truss”, and were consequently wary of any moves which could destabilise the fragile economic equilibrium.

Furthermore, UK consumer confidence plummeted in September, reflecting growing unease about the country’s economic outlook.

While inflation has eased from previous highs, the ongoing impact of elevated interest rates is affecting both businesses and households, leaving little room for fiscal errors, Mr Green warned.

As a result, Ms Reeves was facing “a delicate balancing act”, he stressed, saying: “The need for public investment is clear, but so too is the imperative to maintain market confidence.”

Investors will be scrutinising whether the Chancellor introduces any major changes to debt rules and whether these are accompanied by a credible strategy for fiscal responsibility, Mr Green suggested.

Liz Truss and Kwasi Kwarteng’s 2022 mini-budget, which proposed unfunded tax cuts and significant borrowing, triggered severe market turmoil.

It led to a dramatic sell-off of UK government bonds (gilts), causing a spike in borrowing costs and forcing the Bank of England to intervene to stabilise the financial markets.

The resulting crisis eroded investor confidence, devalued the pound, and ultimately contributed to Truss’s resignation after just 49 days in office.