UK markets appeared unconvinced on Friday by Prime Minister Liz Truss's dramatic moves to draw a line under weeks of financial chaos in Britain.
The pound dropped against the US dollar after Ms Truss scrapped an £18 billion ($20.2bn) cut in corporation tax but vowed to fight on as prime minister.
The bond market meanwhile erased gains from earlier in the day, sending the cost of government borrowing upwards.
Ms Truss sacked her chancellor Kwasi Kwarteng on Friday and ditched a key plank of his tax cuts after the package landed badly with markets, MPs and voters.
“It is clear that parts of our mini-budget went further and faster than markets were expecting. So the way we are delivering our mission right now has to change,” Ms Truss told a press conference.
Former foreign secretary Jeremy Hunt was appointed as the new chancellor. He was described by Ms Truss as one of Britain's most experienced and widely respected government ministers and parliamentarians.
But investors were not wholly reassured by Ms Truss's moves, with some unfunded tax cuts still in place from Mr Kwarteng's mini-budget and the political landscape still uncertain.
Two-year gilt prices, which turned lower before Truss spoke, dropped further in late trade, pushing the yield up 18 basis points to 3.97%, while the blue-chip FTSE 100 index gave up almost all the day's gains to close just 0.1% higher.
The pound was one per cent down at $1.128 after she spoke. Returns on government bonds, which came under severe pressure in recent weeks, tipped higher.
The blue-chip FTSE 100 index gave up almost all the day's gains to close just 0.1% higher.
Ms Truss's U-turn means corporation tax will rise from 19 to 25 per cent next year as planned by the previous government. She had called for the increase to be scrapped while running for the Conservative leadership.
However, a cut in the basic rate of income tax, the reversal of a national insurance rise the abolition of a health and social care levy are still going ahead, along with supply-side reforms announced by Mr Kwarteng.
“The key is how big this U-turn is in practice and less about the person in charge,” Reuters quoted James Smith, an economist at ING, as saying.
“There is a bit of a risk that if we have only a partial U-turn then potentially the markets will come under pressure again next week.”
James Athey, from investment company Abrdn, said Mr Kwarteng's mini-budget was not the only thing that might put investors off the British economy.
“Inflation is at multi-decade highs, government borrowing is huge as is the current account deficit. The housing market is likely to suffer a hammer blow from the jump in mortgage rates and the war in Ukraine rumbles on,” he said.
“We may well be through the worst of the volatility but I fear that the UK is nowhere near out of the woods.”
Chancellor Kwasi Kwarteng — in pictures
Mr Kwarteng was fired on the day that the Bank of England was due to end an emergency intervention in the bond market.
The Bank stepped in to buy long-term bonds and calm markets after Mr Kwarteng announced the huge package of debt-fuelled tax cuts.
The chaos has left Ms Truss fighting for political survival barely a month after she moved into Downing Street.
Polls show a collapse in support for the ruling Conservatives, with the opposition Labour Party enjoying huge leads not seen since the 1990s.
Rumours are swirling of a Tory plot to replace Ms Truss, with one suggestion floated in Westminster that defeated leadership candidates Rishi Sunak and Penny Mordaunt could run on a unity ticket.
