MARKET ANALYSIS

The UK’s Autumn Budget, delivered on 26 November 2025, arrived precisely at the moment of peak mixed global signals. What followed was a rally in gilts, a firming in sterling, and a modest rise in UK equities, which offered an unusually clear illustration of how the UK is currently perceived by international markets: just about stable enough to avoid a crisis, but not yet transformed into a high-conviction growth story.

To understand that delicate balance, it is useful to look at the UK within the broader context of global market movements over the past four weeks. When we wrote to you in October, we explained that market volatility had started to increase. And that remains the case; the ‘melt-up’ continues, albeit with a significantly higher degree of volatility. Equity markets were buoyant for most of November. The MSCI World Index rose approximately 3.8% over the month, marking its strongest performance since mid-year. The S&P 500 gained around 4.5% over the same period, helped by softer inflation expectations and a growing consensus that the Fed could begin cutting rates in early 2026, if not in December 2025. The European indices rose nearly 3% while Japan’s Nikkei reached its highest levels in more than three decades, touching a high above 50,000 – it has since retraced somewhat on fears Japanese monetary policy will be tightened (higher interest rates) while the western economies are pushing towards looser monetary policy.

In the United States, the October CPI (inflation) reading of 3.2% year-on-year and cooling labour-market indicators contributed to a decline in Treasury yields. The US 10-year Treasury yield fell from around 4.68% in late October to roughly 4.34% by late November. Futures markets priced in an approximately 60% probability of a rate cut by March 2026 (FedWatch).

European bond markets showed a similar pattern. The German 10-year Bund yield drifted from 2.78% to around 2.63% over the month, reflecting stabilising energy prices and lacklustre industrial production. Corporate bond markets rallied as credit spreads (the difference between government bonds and company bonds) tightened back toward early-2024 levels. The overall tone across developed bond markets was therefore one of cautious optimism and moderate risk-taking.

As stated above, the final days of November introduced some unexpected complications as the Bank of Japan Governor signalled that the BoJ was prepared to consider rate increases sooner than markets expected. The yen appreciated nearly 2% against the US dollar in a single session and the Japanese 10-year yield climbed to its highest level since 2008. This surprise shift triggered a brief global risk-off move. European and US equities declined and gold started appreciating once again.

UK BUDGET

This volatility set the stage for the UK’s Autumn Budget, presented by the Chancellor on 26^th November. Markets were nervous about what might be delivered by the Chancellor, however, as we have explained in our pre and post-budget analyses, many of the changes were seemingly innocuous. The memory of the Truss / Kwarteng September 2022 mini-Budget crisis still shapes investor psychology, and the fear of a fiscal mis-step was palpable – this wasn’t helped by the OBR’s release of the budget’s minutiae one hour prior to the Chancellor’s presentation to the House of Commons. 

The outcome, instead of creating chaos and volatility, was really quite benign. The market’s perception was that the Chancellor had delivered a combination of fiscal discipline and political restraint that soothed investors and confirmed that the country remains anchored to Labour party fiscal orthodoxy.

The gilt market was the first to react: according to Bank of England data, the UK 10-year gilt yield closed above 4.5% on 25 November. After the Budget speech and the release of the Office for Budget Responsibility’s forecast, the 10-year yield fell to roughly 4.4% – this is a relatively large move in gilt yields. Analysts at Deutsche Bank confirmed this was the largest fall in UK yields on a fiscal statement day relative to US Treasuries and German Bunds since 2006, during the last Labour government. Long-dated gilts fell by a similar measure.

This reflected gilt investors’ (i.e. predominantly other sovereign nations) comfort with the fiscal message. The OBR’s updated projections indicated that fiscal headroom had approximately doubled relative to its earlier forecast, and that despite headline tax rates for income tax, NICs, and VAT remaining unchanged, the budget extended the freeze on personal tax thresholds up to 2031, pulling millions of workers into higher tax bands. While extremely contentious politically (many see this as an effective increase in income tax), this mechanism reassured bondholders that the government would continue to generate revenue without additional borrowing.

As well as gilt yields moderating, sterling also strengthened in response. The pound rose roughly 0.5% against the US dollar during the Budget session, reaching around $1.32. It also appreciated modestly against the euro. Foreign exchange markets, often the most volatile during fiscal announcements, signalled confidence in the overall stance of the budget and the medium-term fiscal policy.

EQUITIES

During the budget, UK equities fell in the early part of the Chancellor’s speech. It is difficult to say whether this was a result of the chaotic distribution of the budget by the OBR or investor nervousness. Throughout the latter part of the budget, as gilts and sterling rallied, so did UK equities with the FTSE100 finishing the day higher by 0.8%, while the more domestically focused FTSE 250 gained around 1%.

Sector analysts noted that banks and homebuilders benefitted from falling gilt yields and the implication was that mortgage rates may decline in the short to medium-term. 

Still, relative to global indices, UK equities remain subdued. The Budget-day uptick followed a strong November for global equities, and the FTSE’s performance looked more like participation in that global trend than a fundamental re-rating of UK assets. Structural constraints – including slower productivity, weaker business investment, and tight labour-market capacity – continue to weigh on sentiment. The UK’s overall tax burden is projected to reach its highest level since immediately after WW2, while business investment as a percentage of GDP remains lower than the OECD average.

In this context, the Budget did not change anyone’s minds regarding the UK economy. Rather, it provided reassurance that the UK is unlikely to veer off a path of stability, or fall off the proverbial cliff. Gilts have endured a difficult five year period, with most gilt funds falling c.20%. Even after the Budget rally, the UK’s 10-year yield remains significantly higher than the German Bund yield and only modestly lower than the US 10-year Treasury. This indicates that investors will continue to demand a risk premium for holding UK gilts until the ‘black holes’ are filled in.

CONCLUSION

Ultimately, the November global environment provided a supportive backdrop with declining yields, stronger equities, and an easing narrative around central banks. The UK budget proffered fiscal normality at a moment when global investors are craving it. It neither challenged the prevailing optimism nor introduced new risks. In that sense, it served its most important function: stabilising expectations.

Yet stability is not momentum. While we avoided disruption and gained modest credibility, it has not yet addressed the deeper structural issues holding back the UK’s growth potential. The markets’ reaction – support without exuberance – captures that reality. The country has regained its footing, but the climb ahead still depends on long-term reform rather than short-term reassurance.

However, stability is not momentum. While we avoided a big risk-off move in gilt and equity markets, whilst gaining a modicum of credibility, it has not yet addressed the deeper structural issues holding back its growth potential. The markets’ reaction – support without exuberance – captures that reality. The country has regained its footing, but the climb ahead still depends on long-term reform rather than short-term reassurance.