UK government borrowing costs fell sharply and the pound rallied after Jeremy Hunt said he would cut short the emergency price freeze on consumer energy bills and cancel most of unfunded tax cuts in last month’s mini-budget. The yield – or interest rate – on 30-year UK government bonds fell by more than 0.4 percentage points on Monday after the chancellor’s statement, with a decline in borrowing costs across the board for short- and long-dated bonds. The pound rose by more than 2% against the dollar, trading above $1.14 on global currency markets. The FTSE 100 closed up 0.9% at 6,920, on a day of gains across financial markets in the US and Europe. In a sharp U-turn aimed at restoring market confidence, the new chancellor said he would scrap all of the measures announced in the mini-budget that had not been legislated for. The government will keep the cuts to stamp duty that came into effect last month, and push through plans to reverse the rise in national insurance, due to come into force from 6 November. The government’s energy price guarantee – which limits average household bills to £2,500 for a typical family – will be reduced from two years to only six months, while plans to cut income tax will be cancelled “indefinitely” to save billions of pounds. “This should go some of the way to restoring a semblance of confidence in UK assets and removes much of the mini-budget risk premium attached to the pound,” said Matthew Ryan, the head of market strategy at the financial services firm Ebury. “That said, we far from expect it to be plain sailing for sterling from here on out. “The UK government’s credibility has taken a massive hit from the budget fiasco, with markets still none the wiser as to how and when the Tories plan to close Britain’s large fiscal gap. Liz Truss also appears to be running on borrowed time, with bookmakers now assigning around a 70% implied probability that she will be gone before year end.” The drop in bond yields came despite the removal of the Bank of England’s emergency gilt market intervention at the end of last week, after the central bank said it would withdraw its temporary support measure. Despite the fall in yields – which move inversely to bond prices – UK government borrowing costs remain higher than before Kwasi Kwarteng’s ill-received mini-budget last month. After sliding on Monday, yields remained at about 4.3%, significantly higher than the 3.8% level seen the day before the former chancellor announced a package of unfunded tax cuts designed to boost the economy worth £45bn. In the market chaos that followed, rates peaked at about 5% before the Bank was forced to intervene. Chris Beauchamp, chief market analyst at IG Group, said Hunt’s focus on restoring market confidence showed the government wanted to send a message that it was “getting a steady hand back on the tiller”. He said: “This greater degree of self-awareness, as well as Hunt’s reputation as being more of a ‘safe pair of hands’, certainly seems to have reassured everyone. For now, the market seems happy to give the new chancellor time and space to put the government’s house back in order.”