Published by Global Banking & Finance Review®
Posted on November 26, 2025
6 min readLast updated: January 20, 2026
Add as preferred source on GoogleSterling and UK bond prices rose as Rachel Reeves' budget announcement provided fiscal headroom, affecting market dynamics.
LONDON (Reuters) -Sterling and UK government bond prices edged up on Wednesday in volatile trade as Britain's finance minister Rachel Reeves delivered a highly-anticipated budget.
Britain's government will have almost 22 billion pounds ($28.9 billion) in fiscal headroom in five years' time, according to estimates by the country's budget watchdog published on its website on Wednesday ahead of Reeves' budget statement. That is higher than a Reuters poll expected.
Sterling was last up 0.1% on the day at $1.3188, having edged down from a session high of $1.3225. Ten-year gilt yields were around 3.4 basis points lower on the day at 4.46%, as their prices rose.
London's blue-chip FTSE and the domestically-heavy FTSE 250 stock index were last up 0.6% each .
COMMENTS:
RORY MCPHERSON, CHIEF INVESTMENT OFFICER, WREN STERLING, LONDON: "It could have been a lot worse and that's what the market was fearing. Looking at the key market indicators, it has been taken positively. Stocks sold off and are now rallying, bond yields have come down, which means we could get a rate cut, and inflation swap markets and the currency are also stable. "The bit that is unresolved is the OBR downgrade to productivity, which is meaningful. That could add 15-20 billion pounds to debt and that is something that could come back to bite next year if we don't get economic growth."
EVELYNE GOMEZ-LIECHTI, MULTI-ASSET STRATEGIST GLOBAL MARKETS, MIZUHO INTERNATIONAL, LONDON:
"The problem is this budget has back-loaded most of the fiscal tightening and for what matters, has near-term fiscal loosening. Hence the mixed market reaction. However the disinflation impact from the measures is quite decent and the headroom has been increased."
LALE AKONER, GLOBAL MARKET ANALYST, ETORO, LONDON:
"For markets, the package is broadly supportive of gilts: a larger fiscal buffer and a credible path to lower borrowing reduce pressure on yields, even if inflation risks remain elevated in the near term. UK equities face a more mixed picture. Consumer-exposed sectors may struggle with weaker spending power, while higher taxes on dividends and property income reduce the appeal of traditional income plays. Conversely, reforms such as the ISA allowance split and stamp duty relief for new IPOs support equity market participation and efforts to revive London listings."
SANJAY RAJA, CHIEF UK ECONOMIST, DEUTSCHE BANK, LONDON:
"Today's Autumn Budget marked the third largest tax-raising Budget since 2010. Put simply, while this year's Budget paled in comparison to the Chancellor's spending announcements from 2024, tax raising measures were indeed historic."
GRANT SLADE, UK ECONOMIST, MORNINGSTAR:
"The Autumn budget’s fiscal consolidation efforts focus on further freezes to income tax threshold indexation and a range of other, smaller receipt raising measures. Encouragingly, Reeves’ greater tax haul - and an improved set of economic forecasts from the OBR - delivers improved fiscal headroom, estimated at 22 billion pounds relative to her self-imposed fiscal rule to balance the current budget by fiscal year 2029/30.
"Still, this has been achieved via a combination of tax measures that are largely back-loaded. Consequently, the gilt market was largely unimpressed by the chancellor’s widened fiscal wiggle room, with gilt yields remaining above levels in recent weeks when broad-based hike to income taxes were expected. Hikes to the headline income tax rates would have been a preferred outcome for gilt markets since they are front-loaded and signalled a more aggressive approach to debt consolidation.
"The newly announced income tax rate freeze is expected to raise an additional 8 billion pounds by fiscal year 2029/30, and does the heavy-lifting in achieving a forecast current budget surplus in 2029/30. The charging of NICs on salary-sacrificed pension contributions is also a sizeable contributor to the increased tax take. The freezing of income tax thresholds to April 2030 strikes us as an interesting choice for a Labour government given that stealth taxes of this nature are regressive, resulting in the UK's lowest earners paying more tax. Moreover, saving is disincentivised by the new tax on salary sacrificed pension contributions which will now be taxed on their way into pension accounts, and then again when pension earnings are eventually withdrawn."
JOHN STOPFORD, HEAD OF MANAGED INCOME, NINETY ONE, LONDON:
"The budget looks less gilt-friendly at first glance than expected. The OBR has assumed higher nominal GDP due to stickier near-term inflation, which boosts the tax take and leaves a smaller reduction from the March forecast in the Chancellor’s headroom than anticipated. Borrowing is higher through most of the forecast period before delivering a larger current surplus in the final year, with spending increases front loaded and taxes backloaded. So while the headline figures are more positive, the detail and route by which they are expected to be met looks less convincing."
NEIL WILSON, UK INVESTOR STRATEGIST, SAXO MARKETS, LONDON:
"Here is the key to why markets might see this budget as lacking credibility - the direct effects of budget policies increase borrowing by 6 billion pounds next year but reduce it by 15 billion pounds in 2029-30.
"The indirect effects of budget policy measures on the economy are estimated to lower borrowing by 2 billion pounds in 2026-27 largely thanks to impact of lower inflation on debt interest spending. From 2027-28 onwards, the indirect effects of policy add to borrowing by amounts rising to 5 billion pounds in 2029-30.
"This was one of our key questions this morning - How are you selling fiscal restraint at the end of the parliament when you have signally failed to deliver any cuts or reform to welfare spending?
"Fiscal buffer increases to 21.7 billion pounds from 9.9 billion as a result - but who cares about the buffer if the assumptions are not credible?"
KALLUM PICKERING, CHIEF ECONOMIST, PEEL HUNT, LONDON:
"10-year gilt yields are up slightly, inflation expectations are up a bit too and not much change for Bank of England pricing, to a large extent it doesn’t seem to be surprising markets much.
"My concerns are that the headroom - although it looks bigger, 22 billion pounds versus the current spending of 9.9 billion pounds - when I look at the composition a lot of it is backloaded.
"You go pretty aggressive from 2026 onwards into a current surplus, which means the market is being asked to believe the OBR forecast which is chronically optimistic, which is why I think the market is a bit concerned."
(Reporting by Reuters Markets Team; Compiled by Amanda Cooper; Editing by Yoruk Bahceli and Dhara Ranasinghe)
Bond prices represent the amount investors are willing to pay for a bond. They fluctuate based on interest rates, credit ratings, and market demand, impacting the yield or return on investment for bondholders.
Sterling, often referred to as the British pound (GBP), is the official currency of the United Kingdom. It is one of the world's major currencies and is used for trade, investment, and savings.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks often aim to control inflation through monetary policy to ensure economic stability.
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