The UK 10-year gilt yield fell to 4.55% after reaching a one-month high of 4.58% on Friday, following a sharp selloff triggered by Chancellor Rachel Reeves’s decision to scrap planned income-tax increases.

Fiscal Outlook and Budget Adjustments

The tax policy shift has raised concerns about the UK’s fiscal sustainability, even though the Office for Budget Responsibility (OBR) revised the projected budget deficit down to £20 billion from £35 billion, citing stronger revenues and wage growth.

Reeves is expected to raise funds through threshold adjustments and salary-sacrifice reforms, opting for a smaller-scale budget rather than major tax hikes.

Political and Market Uncertainty

Political uncertainty persists amid cabinet divisions and recent turmoil surrounding Prime Minister Keir Starmer.

Markets now price in roughly a 75% chance of a Bank of England rate cut in December, reflecting concerns over economic growth and inflation.

Investors will closely monitor upcoming inflation data, flash PMIs, and potential moderation in manufacturing and services growth in the coming week.