UK bond markets experienced significant fluctuations on Friday following the announcement that Chancellor Rachel Reeves would not pursue an increase in income tax as part of the upcoming autumn budget. This decision, which was first reported by the Financial Times, emerged amid internal conflicts within the Labour Party and concerns over possible backlash from backbenchers regarding any deviation from the party’s manifesto commitments.
The cost of UK government borrowing rose substantially, with the yield on 10-year government bonds, known as gilts, increasing by more than 0.13 percentage points to approximately 4.575%, marking the highest level in a month. Concurrently, the British pound fell by about 0.3% against the US dollar, trading at $1.3155, reflecting growing investor apprehension ahead of the critical budget due in less than two weeks.
Earlier in the week, there had been a sense of optimism among City investors regarding the budget, as Reeves had suggested a willingness to break with Labour’s manifesto to address a potential shortfall in government finances estimated at up to £30 billion. However, the recent announcement has reignited uncertainties, especially considering the backdrop of global financial market sell-offs driven by fears regarding the US economy. The FTSE 100 index closed over 1% lower at 9,698.
Analysts pointed out that the political landscape within the Labour Party is unstable, raising the possibility of leadership challenges against Keir Starmer, with speculation on potential successors. Additionally, concerns have been voiced about the implications of potential changes in leadership and economic policy direction, particularly regarding fiscal sustainability.
As discussions continue in advance of the November 26 budget, Ruth Curtice, CEO of the Resolution Foundation, highlighted the unusual public discourse surrounding fiscal forecasts, including the need for greater caution regarding market-sensitive information.
Source: https://www.theguardian.com/business/2025/nov/14/rachel-reeves-plan-income-tax-rise-bond-sell-off-pound-dollar-markets