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Speculation the UK chancellor has scrapped plans to raise income tax sparked a sell-off in UK government bonds amid fears over unfunded spending pledges. Britain’s long-term borrowing costs were sent soaring as reports suggested the latest U-turn would leave Rachel Reeves scrambling to fill a gaping black hole in the nation’s finances just two weeks before the November 26 Budget. Yields on 30-year UK government bonds, also known as gilts, jumped as much as 14 basis points in early trading, and the yield on 10-year gilts also shot up 12 basis points rising the most since July. The yield moves counter to the price of bonds, meaning that prices fall when yields rise. Yields later eased back a little, with 30-year gilt yields standing seven basis points higher at 5.3% and 10-year gilt yields up six basis points at 4.5%. Kathleen Brooks, research director at XTB, said the latest Budget reports ‘mean the chancellor has signalled billions of unfunded spending pledges, which the bond market is not fond of’. She added: ‘Bond market volatility is not what the chancellor wants to see with less than two weeks to go before the Budget. ‘In the past, the chancellor has reversed course based on the bond market reaction, will she reverse the reversal on income tax this time? ‘Either way, someone needs to give the market clarity on what this budget will deliver, otherwise it could be a bloodbath for the gilt market.’ Gilts have already been under pressure this week amid reports of political turmoil and weaker-than-expected economic data. A sell-off in government bonds was seen on Wednesday amid rumours over a leadership challenge to Prime Minister Keir Starmer, and this was compounded on Thursday by disappointing economic growth figures showing gross domestic product lifted just 0.1% in the third quarter. Neil Wilson, UK investor strategist at Saxo Markets, said: ‘The problem with not raising income tax is that’s its mechanically the best lever otherwise, faced with such a large black hole, you have to scratch around with a load of smaller things, pulling all kinds of levers that mess with all sorts of things and probably squeeze growth even more, and you just need to come back for more. ‘Moreover, the market thinks you lack credibility in terms of filling the black hole and raising headroom. ‘This is the doom loop scenario bond yields rise and borrowing costs are higher and you need to squeeze the pips some more.’ By Holly Williams, PA Business Editor Press Association: Finance source: PA Copyright 2025 Alliance News Ltd. All Rights Reserved.
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