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Pound retreats after gilt yield drop following Budget: "Thursday morning has brought a sober reality check"

ended 27. November 2025

EXPERTS have warned that "Thursday morning has brought a sober reality check" after the Pound retreated and gilt yield rose today following yesterday's Budget.

Chancellor Rachel Reeves' Budget yesterday appeared to have been received positively by the market.

The Pound climbed to $1.33 against the Dollar and UK government bonds also rallied yesterday after it was revealed that Reeves will end up with a £22bn fiscal headroom.

30-year gilt yields dropped by about 11 basis points to 5.21%. 10-year gilt yields also eased, with yields dropping to 4.43%.

But those figures are retreating this morning with the Pound back to $1.32 against the Dollar and yields up to 4.47%.

Prem Raja, Head of Trading Floor at Currencies 4 You, said the markets are not so positive now they have digested the Budget.

He added: "Chancellor Reeves’ Budget initially sparked a relief rally in the City, but less than 24 hours later, that optimism is evaporating. Yesterday, markets cheered the surprise £22bn fiscal headroom – far exceeding the expected £9bn – which reassured investors that the government wouldn't need to borrow recklessly. 

"This sent 30-year gilt yields dropping 11 basis points to 5.21%, with 10-year yields easing to 4.43%. However, Thursday morning has brought a sober reality check. The Pound has retreated to $1.3212, giving back yesterday's gains. Why the reversal? Investors are looking past the headline figures at the OBR’s gloomy growth downgrades for the later years of the parliament. 

"The market now realises that Reeves’ ‘stability’ relies on painful tax hikes delayed until 2028. While she avoided a market meltdown, the retreating Pound suggests the City is sceptical that this low-growth plan is sustainable long-term."

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said concerns are mounting.

He continued: "The initial market response was favourable with the Pound gaining 0.5% against the Dollar and 0.9% versus the Euro, both reaching late-October highs. 

"The 10-year gilt yield dropped to 4.42%, the sharpest decline since April, as Reeves' measures secured £22bn fiscal headroom. The mood is already turning sour, with the markets already this morning pricing in the wholly negative economic consequences. 

"The Budget's £70bn tax increase across two budgets pushes the tax burden to a post-war peak of 38.3% of GDP, more than any modern Chancellor. Concerns are mounting that these measures could push the sluggish economy into outright recession once they impact the real economy."

 

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Editor
Tony Redondo
Founder at Cosmos Currency Exchange
The initial market response was favourable with the Pound gaining 0.5% against the dollar and 0.9% versus the euro, both reaching late-October highs. The 10-year gilt yield dropped to 4.42%, the sharpest decline since April, as Reeves' measures secured £22bn fiscal headroom. The mood is already turning sour, with the markets already this morning pricing in the wholly negative economic consequences. The budget's £70bn tax increase across two budgets pushes the tax burden to a post-war peak of 38.3% of GDP, more than any modern Chancellor. Concerns are mounting that these measures could push the sluggish economy into outright recession once they impact the real economy.
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Editor
Prem Raja
Head of Trading Floor at Currencies 4 You
Chancellor Reeves’ Budget initially sparked a relief rally in the City, but less than 24 hours later, that optimism is evaporating. Yesterday, markets cheered the surprise £22bn fiscal headroom- far exceeding the expected £9bn-which reassured investors that the government wouldn't need to borrow recklessly. This sent 30-year gilt yields dropping 11 basis points to 5.21%, with 10-year yields easing to 4.43%.

However, Thursday morning has brought a sober reality check. The Pound has retreated to $1.3212, giving back yesterday's gains. Why the reversal? Investors are looking past the headline figures at the OBR’s gloomy growth downgrades for the later years of the parliament.

The market now realises that Reeves’ "stability" relies on painful tax hikes delayed until 2028. While she avoided a market meltdown, the retreating Pound suggests the City is skeptical that this low-growth plan is sustainable long-term.