UK Borrowing Costs Rise and Stocks Decline Amid Growing Speculation on High-Stakes Budget

Bond Yields Rise: British government bond yields increased sharply after reports that Finance Minister Rachel Reeves will not raise income tax rates in the upcoming Autumn Budget, with the 10-year gilt yield reaching 4.498%.

Stock Market Reaction: U.K. stocks fell over 1% in response to the news, particularly affecting banks like Lloyds, Natwest, and Barclays, which each lost more than 2.8%.

Tax Policy Changes: Reeves had previously indicated a potential income tax increase, which caused division within the Labour party, but now smaller tax increases are expected to address a £30 billion budget shortfall.

Market Pressures: Analysts warn that a patchwork approach to tax increases could lead to more pressure on the gilt market and higher long-term borrowing costs, which are currently at their highest levels since the late 1990s.