UK Budget decision could send gilt yields soaring
Rising borrowing costs and a weaker pound put the UK Budget in focus. Michael Kramer examines the key levels for sterling, gilt yields and precious-metals miners as investors seek reassurance on public finances.
Founder, Mott Capital Management
UK Budget announcements have attracted considerable international attention since the 2022 mini-budget turmoil sent British government bond yields soaring. While this year's Budget, due on Wednesday 28 October, may not produce the same fireworks, it arrives as higher energy prices fuel inflation and government borrowing costs rise. Against this backdrop, the pound has weakened against both the US dollar and the Japanese yen. Britain is not alone; the dollar is strong, and yields are rising elsewhere, notably in France and across Europe, Japan and the US. But the budget is the event that could accelerate those pressures on the UK specifically.
These external pressures have constrained Chancellor John Healey's fiscal headroom, which appears much smaller than anticipated in the spring as inflation rises. Estimates of that headroom now range from as little as £11bn to as much as £20 billion, the latter from the Institute for Fiscal Studies on 11 October, against £23.6bn in the spring. That uncertainty is itself a problem for markets.
The pound has weakened against more than just the dollar
The GBP/USD chart suggests market participants are concerned about the state of the British economy and the uncertainty it faces. The pound has generally been weakening against the dollar and, more importantly, now sits at a crossroads. It is testing a multi-year upward trendline that appears close to breaking.
GBP/USD has traded mostly between $1.32 and $1.37 since December 2025, except for a brief move towards $1.39 in late January. However, the technical chart suggests this range-bound period may be under pressure. With the pound currently at support around $1.32, the setup leaves it vulnerable to a break below $1.318 and a potential decline towards $1.30, which may only be the start of a much steeper decline.
GBP/USD daily, January 2016 – present
Source: TradingView, 12 October 2026
The pound hasn't only struggled against the dollar. GBP/JPY has been trending lower recently, suggesting the pound has been losing ground against the yen as well. That stands out, given how weak the yen has been in recent years; losing ground to it suggests the pound's problem is not just a strong dollar.
At this point, GBP/JPY is at risk of further declines. A break below support around ¥208 may open the way to the ¥200 region. For that to happen, it would likely require some indication that Japan is getting its fiscal policy in order, or that Britain has not done enough to give markets confidence in its ability to manage its public finances.
GBP/JPY daily, January 2024 – present
Source: TradingView, 12 October 2026
The pound has outperformed the euro, although that may simply reflect the eurozone's own problems. French government bond yields have soared, and spreads have widened to levels not seen since the eurozone debt crisis more than a decade ago.
France–Germany 10-year yield spread weekly, January 2009 – present
Source: TradingView, 12 October 2026
Long-term gilt yields have soared
To limit further rises in the UK's long-term borrowing costs, the Budget must reassure investors that the government has a credible plan to manage its public finances. That could involve higher tax revenues, spending restraint, or a combination of both. The Chancellor is considering several revenue-raising options, including expanding the mansion tax and introducing a tax on banks. However, as of Sunday 11 October, the proposed expansion of the mansion tax, lowering the property value threshold from £2m to £1.5m, appears to have been ruled out.
With one fewer revenue option on the table, the 10-year gilt yield looks positioned to extend the rise seen since March 2026. It is now breaking out of a rising triangle that appears to be forming a much larger bull pennant. The technical picture suggests yields could rise further. While we cannot attribute the entire move to concerns about the UK's public finances, those concerns have likely contributed.
The 10-year gilt yield has broken above resistance at 5.25% and appears to be heading towards 5.6%. A budget that merely meets expectations may already be priced in and is unlikely to reverse the trend, while one that fails to deliver the proposed tax increases could push yields even higher, potentially towards 5.9%.
UK 10-year gilt yield weekly, January 1999 – present
Source: TradingView, 12 October 2026
Precious metals and mining sector
With interest rates rising, the FTSE 350 Precious Metals and Mining index has not fared well. The sector performed well while the 10-year gilt yield traded sideways from January 2025 to February 2026. That changed in March; the yield bottomed near 4.25% at the end of February, and the index peaked almost the same day. It has since fallen nearly 30%.
The index is now testing support around 33,000. If the technical outlook for the 10-year gilt yield plays out and yields keep rising, a break below that level could open the way to 30,000, then to the July low near 27,400. The sector would likely need yields to stabilise or fall before it recovers.
FTSE 350 Precious Metals and Mining index daily, March 2025 – present
Source: TradingView, 12 October 2026
While the Budget alone is unlikely to determine markets' long-term direction, it could certainly have a short-term impact, potentially triggering a knee-jerk reaction that reinforces existing trends. That reaction could prove unfavourable unless the Chancellor can raise the revenue needed without unsettling investors.
