Rachel Reeves, U.K. chancellor of the exchequer, delivers a speech in London, UK, on Tuesday, Nov. 4, 2025.
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British government bond yields rose sharply on Friday following reports Finance Minister Rachel Reeves is no longer planning to raise income tax rates in the Autumn Budget later this month.
The yield on the benchmark 10-year gilt rose around 12 basis points in early trade, before paring gains to trade at 4.498%. Yields and prices move inversely to one another.
The moves came as investors reacted to a report from the Financial Times of an income tax U-turn. The Treasury was not immediately available to comment when contacted by CNBC on Friday morning.
U.K. stocks were also lower. The FTSE 100 index shed over 1% at 8:54 a.m. in London (3:54 a.m. ET), with Lloyds, Natwest, and Barclays banks occupying the bottom of the index, each losing more than 2.8%.
Reeves had spent the past week apparently laying the groundwork for a manifesto-breaking rise in income tax, which split Labour party lawmakers and led to further turmoil in the already embattled party, whose leader Prime Minister Keir Starmer has dismal approval ratings.
A proposed 2p national income increase was to be offset by a 2p reduction in national insurance. There are now expectations, however, that the £30 billion ($39.5 billion) hole in the government’s budget will be filled by a patchwork of smaller rises.
It could be a “fiscal reckoning” as a patchwork approach will put pressure on the gilt market, Wren Sterling’s investment chief Rory McPherson told CNBC’s “Squawk Box Europe” on Friday.
“Within the U.K., if we have more of the smaller taxes being targeted as part of the programme from Rachel Reeves, 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 puts more pressure up on yields,” McPherson said.
He added that there has been a “big march down” in yields but now “we’re pulling away that that.”
Volatility this year has left long-term borrowing costs hovering at their highest level since the late 1990s, with U.K. debt having the heftiest price tag in the G7.
McPherson said that the Bank of England will still be able to make an interest rate cut after the budget, if it wants to. Other investors appear to have curbed their optimism, with bets on cuts shedding six basis points compared with Thursday, according to data compiled by LSEG.
The Autumn Budget is expected on Nov. 26.