Gilts and the Autumn Budget – what investors need to know, plus 3 fund ideas

UK government bond (gilt) yields are high heading into this year’s Autumn Budget. And just like last year, markets are watching closely – not just for the Chancellor’s announcements, but for what they could mean for borrowing, inflation, and interest rates.

After a choppy year for the bond market, what’s the case for gilts now?

This article isn’t personal advice. If you’re not sure if an investment’s right for you, ask for financial advice. Yields are variable and are not a reliable indicator of future income, and no income is ever guaranteed. Past performance also isn’t a guide to future returns.

Gilt yields still high

Gilt yields have risen since Rachel Reeve’s first Budget last October caused quite a stir in the market. At the time of writing the 10-year gilt yield sits at 4.65%, with 30-year yields at 5.47% - both near their highest levels in over 15 years.

These yields are down to a few things – rising inflation, uncertainty around government borrowing, and expectations that interest rates could stay higher for longer than previously thought.

At the same time, high yields mean gilts are generating an attractive income and, potentially, even offering growth potential if rates fall in future. That’s because gilt prices typically move in the opposite direction to rates, so, when interest rates fall, yields should also fall, and gilt prices rise.

What does the Autumn Budget 2025 mean for gilts?

The last Budget caused a sharp swing in gilt yields. Initially, they dropped as markets priced in a cautious tone. But once the Chancellor unveiled changes to the fiscal rules and higher medium-term borrowing, investors reassessed the government’s debt plans, and gilt yields jumped again.

Approaching this year’s Budget, the government is under pressure to borrow more, and we could see spending promises in areas like energy and infrastructure. This could mean more gilts being issued in the years ahead.

Meanwhile, economic growth is stagnating and inflation, currently at 3.8%, is still above the Bank of England’s (BOE) 2% target.

This makes life harder for both the government and BOE. Cutting interest rates or increasing spending could help stimulate the economy, but risk fuelling inflation. And holding back could keep inflation in check, but stifle growth.

This uncertainty could create market volatility around the Budget, but that could also create opportunities for investors.

Why gilts now?

With 10-year yields at 4.65%, gilts could appeal to income seeking investors. This is currently higher than what’s available from many UK stocks, with the FTSE All Share yielding 3.35% as at the end of August 2025.

Additionally, while rates are unlikely to drop quickly in the short term, eventually, a cut is more likely than an increase. In this instance gilt prices should rise, providing a boost to returns as well as income.

This is because gilts are free from Capital Gains Tax, whether held inside a tax-free wrapper like a Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP) or even outside one with a Fund and Share Account where it’s free to hold gilts. So, if you sell a gilt for more than you paid, you keep the gain tax-free.

As with any investment, there are risks. If inflation stays stubborn or the BOE delays further rate cuts, gilt yields could rise again, which would push prices lower. And any higher-than-expected borrowing in the Autumn Budget could also put upward pressure on yields.

Looking at it long term, future yields will likely be lower than where they are today. That means investing now offers the potential for capital gains as well as income.

Remember though, all investments and any income from them can rise and fall in value, so you could get back less than you invest.

Want exposure to bonds? – 3 fund ideas

For investors looking to add bonds and gilts to their portfolio but not sure where to start, here are three expertly managed funds. But remember, investing in gilts through funds doesn’t offer the same tax benefits outside of a tax wrapper.

Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

For more details on each fund and its risks, use the links to their factsheets and key investor information.