Will Stock and Bond Markets Rise or Fall on Rachel Reeves’ Autumn Budget?

Key Takeaways

• UK government bond yields have been volatile this year as investors worry over the chancellor’s plans.
• The FTSE 100 is better insulated from the potential effects of domestic policy changes than the FTSE 250, but some stock sectors are vulnerable.
• While the pound has rallied this year, the UK currency could be vulnerable if the chancellor’s plans are badly received.

Households are primed to hear Rachel Reeves unveil fresh tax rises at the government’s second Autumn Budget on Wednesday, but while these will undoubtedly provoke a negative voter reaction, markets are also bracing for confirmation of which policies will get the green light.

The anticipation comes at an uncertain time for UK businesses, which have been delaying new hires and capital investment until they know the contents of Reeves’ speech. But it also comes after a year of record highs on the UK blue-chip FTSE 100. With as much as 80% of FTSE 100 revenue derived from the global economy, it’s the FTSE 250 index that is far more vulnerable to a selloff than its peer.

Morningstar’s European market strategist Michael Field says: “The FTSE 100 likely won’t do anything, because these are global companies with enough ‘transfer pricing’ consultants to get around it. It’s far more likely we’ll see a selloff on the FTSE 250.”

Which Stock Sectors Are Vulnerable to The Autumn Budget?

Wednesday’s budget is likely to be a policy-heavy affair, with plenty of “tinkering” to ensure the government’s books are balanced.

According to reports, that could include everything from pensions tax-free cash to a so-called “mansion tax” on higher-value residential properties. The property tax is reportedly based on a valuation threshold of £2 million—effectively targeting the most valuable properties—as well as a revaluation exercise within the council tax system to bring 1991 valuations up to date for 2025 and beyond. If it’s announced, housebuilding stocks will likely fall.

“Both policies would disproportionally hit London and the South East and we maintain our preference for housebuilders with minimal exposure to these markets, such as Persimmon,” says Morningstar equity analyst Jack Fletcher-Price.

“The mansion tax has the potential to slow down transactions above the threshold, as logically owners would defer moving in the hope it will be repealed by a later government. The changes to council tax bands is probably overdue, but it will further undermine trust in this government given they promised not to do this in the run up to the election,” Fletcher-Price says.

Likewise, if the chancellor goes ahead with her much-debated policy of limiting cash ISA holdings to encourage stock market investing, it’s likely banks will suffer something of a share price dip, but that could well be the case anyway if the government targets banking profits in the name of a windfall tax. Even if the overall effects on the FTSE 100 are not as tangible as originally feared, it’s likely investors will see some sector-specific impact.

“Some sectors will be more directly exposed to the budget than others,” says Kathleen Brooks, research director at trading platform XTB.

“This includes gambling firms, real estate and UK banks. Now that the chancellor has abandoned raising income tax, the gambling tax, a windfall on UK banking profits and property taxes are all on the line.”

Why Are Markets So Sensitive To Budget News?

The date of this year’s Autumn Budget was confirmed in early September, so there has been more time than usual for savers, investors, politicians, and other stakeholders to speculate about its contents. By the time chancellor Rachel Reeves has delivered the package on Wednesday, there will have been at least 83 days of discussion about what could happen.

Indeed, this week’s fiscal event is the latest a budget has occurred in the calendar year since former chancellor Philip Hammond’s Autumn Budget of Nov. 27, 2017, and the latest government fiscal statement since George Osborne’s Autumn Statement of Nov. 28, 2011.

UK bond markets have already been volatile this year, with gilt yields rising amid uncertainty over whether the government will meet its fiscal rules of achieving either a balanced budget, or surplus by the 2028/29 tax year.

10-year gilt yields spiked to 5% in early 2025 and revisited those levels in late September amid speculation over the chancellor’s job.

In November, when reports suggested the government had dropped its plans to raise income tax, UK gilts sold off once more, and yields spiked again.

Could Gilts Sell Off on Budget Policy?

The possibility of a negative gilt market reaction in the wake of the budget is still real. It may take more than just the current “smorgasbord” approach of carefully-created policies to persuade gilt traders Reeves is serious about fiscal rectitude.

Morningstar’s Field says: “If Labour breaks its promise and increases income or corporation tax then the UK gilt markets will probably like it.”

AJ Bell investment director Russ Mould says that there’s a disconnect between what would be a “good” budget for bond markets, and one that is badly received by taxpayers. Here higher taxes and/or lower public spending and government borrowing— a sign that the chancellor is making “tough choices” on the public finances—could lead to a rally in gilts and drop in yields.

“A wide range of smaller tax increases also raises the risk that the hoped-for income does not materialize in the expected quantity, or on time. But what the bond market wants is not necessarily what the voters or party members want. Gilt holders just want to ensure they can be paid, and the economy not sufficiently jeopardized so that issuance goes up a lot in the event of disappointing tax revenue.”

The Pound Could Be Volatile on Budget Day

The UK currency is also a factor here: Because of the dominance of dollar earners in the FTSE 100, sterling weakness can offset falls in stock prices. The pound has appreciated against the dollar in 2025, rising from USD 1.25 at the start of the year to a high of USD 1.37 at one point. The dollar’s gains in recent weeks have pushed the pound back to USD 1.31.

Any negative reaction to the budget could lead to a selloff in sterling, as well as in the UK bond market.

Matthew Ryan, head of market strategy at financial services firm Ebury, says investors should brace for currency volatility on the day.

“If Reeves is unable to convince markets that she has a credible long-term plan for fiscal sustainability, then the pound could struggle on Wednesday,” he says.

James Gard contributed to this article.