Early October 2025 has seen significant movement in the UK gilt market, with government bonds rising sharply as investors reacted to potential fiscal measures. Chancellor Rachel Reeves is reportedly preparing for a budget that could include tax increases and reduced government spending, aiming to manage the national deficit.
As a result, 10-year gilts saw yields drop below 4.5%, marking one of the largest weekly declines in several months. Analysts note that market expectations of tighter fiscal policy have boosted investor confidence in the UK bond market.
The global context also plays a role: expectations of lower interest rates from the U.S. Federal Reserve have contributed to downward pressure on yields, making gilts more attractive to foreign and domestic investors alike.
Despite the short-term rally, some concerns remain over how these fiscal measures will impact long-term economic growth and the budget deficit, which currently stands at £22 billion. Market participants are closely watching the government’s announcements and OBR forecasts for clues on future bond market movements.
In this environment, investors are balancing the potential benefits of fiscal discipline with the risks associated with reduced public spending. Early October’s rally underscores how macroeconomic expectations and government policy can quickly influence bond markets.
