November 14, 2025 – British government bonds, equities, and the pound fell sharply on Friday after reports suggested the upcoming UK budget would abandon previously expected income tax hikes.

Sharp Rise in Bond Yields

The 10-year UK government bond yield jumped 10 basis points to 4.54%, marking its largest one-day rise since early July. In contrast, German government bond yields rose just 2 basis points. Bond prices move inversely to yields, highlighting market concern over the UK’s fiscal position.

FTSE Index and Banking Stocks Fall

Britain’s FTSE 100 shed over 1%, with major banks including Barclays (BARC.L), Lloyds (LLOY.L), and NatWest each dropping more than 3%. Traders speculated that if income tax increases are not implemented, the government may need to levy higher taxes on banks to cover the fiscal shortfall.

Sterling Weakens Against Dollar and Euro

The pound fell nearly 0.5% against the dollar to $1.3129 and weakened sharply against the euro, which reached 88.64 pence, its highest level since April 2023. Despite higher bond yields typically supporting a currency, concerns over Britain’s fiscal outlook have repeatedly led to simultaneous declines in both sterling and government bonds this year.

Market Confidence Shaken

“Markets had been hoping the government would take steps to improve the fiscal shortfall, such as raising income tax,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Markets. “Now confidence in its fiscal management is shaken, leading to pressure on bonds and the pound.”