Key Takeaways
- Autumn Budget date announced by the chancellor for Nov. 26, much later than expected.
- Bookmakers’ odds suggest Pat McFadden is likely to be the new chancellor.
- 30-year gilts the focus of this week’s selloff, pushing yields to levels last seen since 1998.
As the date for the UK’s much-anticipated fiscal event is set for Nov. 26, the chancellor remains under intense pressure. Long-term bond yields have spiked to levels last seen 27 years ago, pushing up the cost of borrowing, while a political reshuffle on Tuesday appears to have weakened Rachel Reeves’ authority at the Treasury.
Two months since UK bond markets reacted to speculation that Reeves was on the verge of quitting or being replaced, government bond yields have spiked again this week. The selloff has focused on longer-dated bonds, with 30-year yields spiking to 5.82% on Sept. 3, levels last seen in 1998.
The July selloff was triggered in part by fears that Reeves would be replaced by a more fiscally aggressive chancellor, with bigger tax and spending plans. The recent reshuffle of the government’s economic team has intensified speculation of an imminent change of leadership.
Reeves’ deputy at the Treasury, Darren Jones, was this week appointed to the new role of chief secretary to the prime minister, having previously held the same job at the Treasury. Another potential pinch point for UK debt investors is that Pensions Minister Torsten Bell, an advocate for higher taxation, will now help Reeves draft this upcoming Budget. He is also the bookmakers’ third favorite to replace Reeves as chancellor, behind Darren Jones and Pat McFadden.
The Autumn Budget is Now a Winter Budget
Some fund managers have noted that the late Budget date extends the uncertainty and pressure for the chancellor: Fred Repton, senior portfolio manager on the global fixed income team at Neuberger, says Nov. 26 is ”a long time from now”.
But Matthew Ryan, head of market strategy at Ebury, says the late date buys the chancellor time: “Reeves has given herself plenty of time to get her ducks in a row, opting for the latest possible date to call her autumn budget. But, markets are fickle, quick to judge and slow to trust, and will punish the government if they fail to deliver a plan that guarantees fiscal sustainability.”
Morningstar’s chief European equity market strategist, Michael Field, also argues there could be positives in pushing the date back.
“Scheduling the Autumn Budget for what many people would consider winter is pushing it. But there is an upside, this might be a realistic date for Labour, with or without Rachel Reeves, to come up with a realistic plan for addressing the bond market’s concerns.”
Why Rising Gilt Yields Matter
Why is this week’s yield spike a problem for the embattled chancellor? Most obviously, every increase in yields raises the costs of borrowing for the government and narrows the fiscal options Rachel Reeves has over tax, spending and borrowing.
But there is also a political element: Bond market participants selling off UK government debt is seen as a “vote of no confidence” in the state’s fiscal plans, with Reeves as the figurehead for these. The move in yields is partly being pinned on “bond vigilantes”, market participants who use bond sales to signal dissatisfaction with the status quo and prompt government changes of direction.
“Bond vigilantes appear particularly critical of what may be perceived as fiscal mismanagement from the government with the massive shortfall between spending and income almost certain to force further tax hikes in the autumn,” Ebury’s Ryan says.
Bond Market Jitters Go Far Beyond the UK
Longer-dated bonds reflect fixed income investors’ wider concerns about how governments manage their debt. Long-term yields have risen in the US, Japan and eurozone this year amid fears that sovereign states will have to borrow more and spend more to tackle war, climate change, and population changes.
Therefore, this selloff in UK debt is not isolated. Matthew Amis, investment director at Aberdeen and manager of the abrdn UK Government Bond Fund, says that the UK is largely following the global trend:
“Although it makes great headlines, the move in gilt yields in the last few days has largely been in line with other markets. Global bond yields are moving higher and the UK is going along for the ride,” he says.“Gilt markets are on high alert for the Autumn Budget, and constant speculation on tax proposals is far from helpful, but for the time being the UK is not the outlier in global bond markets.”
The pound has also weakened against the dollar and euro this week.
Bookmakers Indicate Rachel Reeves Will Quit
Who would replace Reeves as Chancellor remains unclear. However, in the last few days bookmakers have slashed their odds on the likelihood of a replacement.
Front-runner Pat McFadden is deemed the most likely candidate for the role. He is a close Keir Starmer ally who ran the Labour Party’s 2024 election campaign. He is now odds on to be the next chancellor. Torsten Bell, a former director of the Resolution Foundation think tank, is currently the minister for pensions, but is seen as a rising star within Westminster with a role that spans pension policy in both the Treasury and the Department For Work and Pensions. His odds are 4/1.
Darren Jones, who was Reeves’ number two as chief secretary to the Treasury until he was parachuted into Downing Street, is also a candidate at 7/1.
Will the Autumn Budget See UK Tax Rises?
We now know the Autumn Budget will take place on Nov. 26. This is significantly later than last year’s Autumn Budget, which took place on Oct. 30, 2024.
Whoever is in charge at the Treasury, it is likely the Autumn Budget will raise taxes. Plenty of public figures have warned Reeves may have to do this, and rumored plans to raise taxes on property sales and via the inheritance tax system have done nothing to dispel the sense that the government’s next fiscal event will be unpopular.
FAQ: UK Government Bonds Selloff
Why are UK government bond yields rising in 2025?
Yields have spiked due to investor concerns about the UK’s fiscal outlook, uncertainty over Chancellor Rachel Reeves’ position, and a global trend of rising long-term government borrowing costs.
What does the Autumn Budget delay mean for investors?
The late Nov. 26 Budget adds uncertainty, prolonging market anxiety over tax and spending plans, and leaves investors cautious about the UK’s fiscal direction.
Who could replace Rachel Reeves as chancellor?
Bookmakers suggest Pat McFadden is the front-runner, with Darren Jones and Torsten Bell also in contention to take over at the Treasury.
Why are long-term UK gilts under pressure?
30-year gilt yields have surged to levels last seen in 1998, reflecting fears of higher borrowing, fiscal instability, and pressure from global bond markets.
How do rising gilt yields affect the UK government?
Higher yields increase borrowing costs, narrow fiscal options, and signal a lack of market confidence, forcing the government to consider tax hikes or spending cuts.
What role do “bond vigilantes” play in this crisis?
Bond vigilantes sell government debt to protest perceived fiscal mismanagement, effectively pressuring governments to change course on tax and spending.
Is the UK an outlier in global bond markets?
No. While UK yields have spiked, similar moves are happening in the US, eurozone, and Japan, as governments face rising borrowing needs.
What impact has this had on the pound?
The pound has weakened against the dollar and euro, reflecting reduced investor confidence in the UK’s economic stability.
Will the Autumn Budget include tax hikes?
Many analysts expect tax increases, with inheritance tax and property sales under review, as the government seeks to restore fiscal credibility.
How should investors interpret the current UK bond selloff?
Investors see it as a sign of deepening political and fiscal uncertainty, making the Nov. 26 Autumn Budget a pivotal event for UK markets.
