Markets hold their nerve after chaotic build up to Autumn Budget

The market’s reaction to the Autumn Budget suggests that the Chancellor’s plans to balance the books without any additional borrowing appear credible – at least for now. In the immediate aftermath, gilt yields fell slightly and Sterling appreciated against the Euro and the Dollar but neither fluctuated outside of typical daily market movements.

The Chancellor has raised taxes to an all-time high in order to fund public spending without breaking her self-imposed fiscal headroom. This reduces the risk of the government having to make sudden changes in government policy in response to changes in the economic outlook.

UK investors have fled the FTSE 100 at a record rate in the year to-date with outflows totalling £26bn, of which £3.9bn was during October in the run up to the Autumn Budget. Despite this, the UK stock market has been propped up by foreign investors seeking to diversify their holdings away from concentrated US stock markets. In mid-November, the S&P 500 and the more tech-heavy Nasdaq closed 1.6% and 2.2% down respectively in just a single day due to renewed fears over inflated tech stock valuations. The S&P 500 recovered to finish the month broadly flat whilst the Nasdaq finished 1.5% down.

The rate of inflation in the UK remained above target at 3.6% in the 12-months to October but investors are betting on a further rate cut by the Bank of England (BOE) in December with a market implied probability of 90% following the Budget.

The BOE held the Bank rate at 4% in their November meeting as it seeks to combat sticky inflation and stagnant UK productivity. Meanwhile, investors in the US are now pricing in a 70% chance of a third rate cut by the Federal Reserve (Fed) before the end of 2025. More bullish Fed officials claim that Trump’s tariffs have not significantly impacted inflation, giving the US central bank greater scope to reduce rates in an attempt to bolster a stalling jobs market in the US.

Emerging market equities fell over the month, a blip in an otherwise strong year, having outpaced global equities so far in 2025 driven by a cheap dollar and offering appealing sector exposures such as precious metals. UK investment grade corporate bond spreads rose marginally in the run up to the budget and then drifted back, ending November slightly higher than at the start. Fixed interest gilt returns were flat over the month whilst indexlinked gilts were negative as long-term inflation expectations came down.

Aggregate funding for UK DB pension schemes on a low-risk basis ended the month largely unchange over November, with no particular aspect on the liability or asset side moving the dial.