UK borrowing costs jump, stocks slide as budget speculation mounts
UK finance minister Rachel Reeves gives a speech in London, United Kingdom, on Tuesday, November 4, 2025.
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British government bond yields rose sharply on Friday following reports that Chancellor of the Exchequer Rachel Reeves no longer plans to increase income tax rates in the Autumn Budget later this month.
The yield on the benchmark 10-year gilt rose nearly 12 basis points in early trading before gains eased to 4.498%. Yields and prices move in opposite directions.
The moves came as investors reacted to a report. Finance Times Income tax U-turn. Treasury could not immediately be reached for comment when contacted by CNBC Friday morning.
UK shares were also falling. FTSE100 The index was down more than 1% at 08:54 London time (03:54 ET). LloydsNorthwest and Barclays The banks at the bottom of the index lost more than 2.8% each.
Reeves had spent the past week seemingly laying the groundwork for a manifesto-busting increase in income tax; This has divided Labor MPs and caused further turmoil in the already embattled party, whose leader, Prime Minister Keir Starmer, has dismal approval ratings.
The proposed 2p national income increase would be offset by a 2p reduction in national insurance. But there are now expectations that the £30 billion ($39.5 billion) hole in the government budget will be filled by a patchwork of smaller increases.
It could be a “financial showdown” as a patchwork approach would put pressure on the gilt market, Wren Sterling investment chief Rory McPherson told CNBC’s “Squawk Box Europe” on Friday.
“In the UK, if smaller taxes are targeted as part of Rachel Reeves’ programme, I think that will put more pressure on the government, put more pressure on them to go back to the bond markets and ask for more money, which will put more pressure on yields,” McPherson said.
He added that there had been a “huge drop” in yields but now “we’re giving up on that”.
This year’s volatility has left long-term borrowing costs at their highest level since the late 1990s, with Britain’s debt carrying the heaviest price tag in the G7.
McPherson said that the Bank of England could cut interest rates after the budget if it wanted. Other investors also appear to have limited their optimism, according to data compiled by LSEG; Bets on cuts were down six basis points from Thursday.
The Autumn Budget is expected to be announced on 26 November.
