Headline: Long Gilt Yields Surge as UK Shelves Income Tax Rise
The UK bond market reacted swiftly after Chancellor Rachel Reeves signaled that previously trailed income tax increases will not go ahead. Investors pushed long-dated borrowing costs higher, highlighting ongoing sensitivity to fiscal policy and debt financing plans.
Thirty-year UK gilt yields climbed by roughly 15–16 basis points, reflecting concerns that dropping the tax measure could widen the fiscal gap despite an improved outlook from the Office for Budget Responsibility. While the move does not echo the disorder seen during the 2022 mini-budget episode, the market response suggests investors want clearer guidance on how spending commitments will be funded without raising headline taxes. The shift also underscores how long-dated gilts remain the pressure point for perceptions of fiscal sustainability.
In currencies, sterling showed limited direction, hovering near 1.3150 against the US dollar. The pound initially softened on the headline but later steadied, as traders weighed the near-term budget implications against broader macro factors. With the gilt curve under pressure, attention will likely focus on the government’s borrowing strategy, debt issuance profile, and the credibility of the fiscal framework in the months ahead.
Key Points – UK 30-year gilt yields rose about 15–16 basis points after income tax hikes were scrapped. – Markets are questioning how spending will be financed without higher headline taxes. – The OBR’s improved fiscal outlook has not fully reassured bond investors. – The move is not comparable to the 2022 gilt shock but highlights sensitivity at the long end. – Sterling was little changed, trading around 1.3150 versus the US dollar.
