London, UK – November 14, 2025 – UK financial markets experienced sharp volatility on Friday as speculation mounted over the government’s highly anticipated November 26 budget. Sterling, government bonds (gilts), and stocks all suffered steep declines after reports suggested Finance Minister Rachel Reeves had abandoned plans to raise income tax rates, alarming investors concerned about Britain’s fiscal trajectory.

Market Reaction to Budget Speculation

The initial market response was negative. UK gilt yields briefly jumped over 10 basis points, while sterling fell nearly 0.5% against the U.S. dollar. Although some losses eased during London trading, the broader market remained under pressure, reflecting investor unease.

The 10-year gilt yield was last up 7 basis points to 4.50%, marking its largest one-day increase since September and underperforming U.S. and German peers. Bond yields move inversely to prices, meaning a rise in yields reflects falling bond values. Meanwhile, sterling traded around $1.316, down roughly a quarter of a percent, while the euro briefly hit its strongest level against the pound since April 2023, reaching approximately 88.64 pence.

Concerns Over Fiscal Confidence

Analysts say investors had anticipated that the government would take steps to address the fiscal shortfall, including an income tax increase. “If the Financial Times report is correct, confidence in the government’s ability to improve the fiscal position is shaken,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Markets.

Prior to this report, UK government bonds had been outperforming peers, buoyed by expectations that cooler inflation and weaker economic data might encourage the Bank of England to cut interest rates. The presumed tax increase from Reeves was seen as a stabilizing factor for gilt markets.

Jane Foley, head of FX strategy at Rabobank, noted that markets had expected Reeves to raise income tax, avoiding another “Liz Truss moment” where bond market turmoil contributed to her 45-day premiership collapse in 2022. With tax hikes off the table, investors worry that alternative measures—such as property taxes or pension adjustments—may have broader implications and potentially alienate businesses.

Potential Fiscal Challenges

Finance Minister Reeves is expected to need tens of billions of pounds to meet her fiscal targets. Her previous comments that “we will all have to contribute” had signaled a willingness to raise income tax, but the FT report suggests a departure from that plan. This has sparked concerns that the government may need to impose higher taxes on banks or increase gilt issuance to fill the fiscal gap.

The FTSE 100 index fell over 1%, with major bank stocks including Barclays, Lloyds, and Natwest declining more than 2.5% each. Analysts highlight that it is unusual for gilts and sterling to fall simultaneously, but continued worries over Britain’s fiscal position have produced this pattern multiple times in 2025.

Outlook

Market participants describe the upcoming budget as “the most telegraphed ever.” Investors are monitoring the government’s fiscal approach closely, as any deviation from expected measures could further influence UK stocks, bonds, and currency markets.

With fiscal policy under scrutiny and investor confidence sensitive to political signals, the market remains highly reactive to speculation about tax policy, government borrowing, and budgetary priorities, setting the stage for potential continued volatility ahead of the November 26 announcement.