Rachel Reeves, Britain’s Chancellor of the Exchequer, delivers a speech in London, United Kingdom, Tuesday November 4, 2025.
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Yields on UK government bonds rose sharply on Friday following reports that Finance Minister Rachel Reeves no longer plans to increase income tax rates in this month’s autumn budget.
The yield on the benchmark 10-year gilt rose around 12 basis points in early trade, before paring its gains to trade at 4.498%. Yields and prices move inversely to each other.
The moves came as investors reacted to a Financial Times report of a U-turn on income tax. Treasury was not immediately available for comment when contacted by CNBC Friday morning.
British stocks were also down. THE FTSE100 the index lost more than 1% as of 8:54 a.m. in London (3:54 a.m. ET), with LloydsNatWest and Barclays banks occupying the bottom of the index, each losing more than 2.8%.
Reeves has apparently spent the past week laying the groundwork for an unprecedented income tax rise that has divided Labor lawmakers and led to further turmoil within the already struggling party, whose leader, Prime Minister Keir Starmer, has dismal approval ratings.
A proposed 2p increase in national income was to be offset by a 2p cut in national insurance. However, the £30 billion ($39.5 billion) hole in the government’s budget is now expected to be filled by a patchwork of smaller increases.
It could be a “tax calculation” as a patchwork approach will put pressure on the gilt market, Wren Sterling investment chief Rory McPherson told CNBC’s “Squawk Box Europe” on Friday.
“In the UK, if more, smaller taxes are targeted under Rachel Reeves’s agenda, I think that’s going to put more pressure on the government, more pressure on them to go back to the bond markets and ask for more money, which in turn will put even more pressure on yields,” McPherson said.
He added that there had been a “sharp decline” in yields, but now “we are pulling that back”.
Volatility this year has left long-term borrowing costs at their highest level since the late 1990s, with UK debt the highest priced in the G7.
McPherson said the Bank of England will still be able to cut interest rates after the budget, if it wishes. Other investors appear to have dampened their optimism, with their bets on cuts losing six basis points from Thursday, according to data compiled by LSEG.
The fall budget is expected on November 26.
