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5pm: Market closes higher

The UK’s blue-chip index finished in positive territory after seeing declines of over 1% earlier in the day as investors digested the implications of the Chancellor’s u-turn on top rate income tax.

At the close, the FTSE 100 was up 0.2%, or 15 points at 6,909.

The prospect of less severe hikes in interest rates helped the housebuilding sector with Persimmon and Barratt Developments among those benefiting.

News that Vodafone Group and Hutchison were in talks regarding a merger of their British businesses saw shares in the former rise 3.22% 

9.30am: Davey says Kwarteng should go

Liberal Democrat leader Sir Ed Davey Sky News: “I welcome this U-turn but the unfortunate truth is that this Conservative Government is in complete chaos.

“I don’t think the Chancellor has the credibility to make all the changes that are needed and I think he has to go, and I think that would really restore confidence.”

Sir Ed said the Government has made a “small change”, adding: “We need a far more radical overhaul of the Budget, we need it soon and we need it to be done in a transparent way, and I come to the conclusion, regrettably, that I think this Chancellor can’t deliver that.”

Scotland’s First Minister Nicola Sturgeon said those who called on her government to replicate the tax cut should “be reflecting this morning”.

9am: Sterling up on tax u-turn

The pound advanced against the dollar ahead of the announcement that the government was scrapping plans to cut the higher rate of tax.

Mr Kwarteng said in a statement on Twitter that the government is “not proceeding with the abolition of the 45p tax rate”. He added: “We get it, and we have listened.

“This will allow us to focus on delivering the major parts of our growth package.”

The announcement was followed by a rise in the pound against the dollar. Sterling was up 0.7% to $1.2453 before settling 0.2%, while 10-year gilt rates briefly fell below 4%

The pound has clawed back all of its losses against the US dollar since Kwarteng delivered the mini-budget on 23 September.

The FTSE 100 was down 56 points at 6,837.59. However, the rising pound reduced expectations for future interest rate levels asnd provided support to housebuilders.

Barratt Developments, Taylor Wimpey and Persimmon were towards the top of the blue chip index