London equities experienced a decline on Friday, moving towards weekly losses, as gilt yields rose sharply following reports indicating that the UK government had scrapped plans for income tax increases in the forthcoming budget. The blue-chip index FTSE 100 fell 1.9% as of 12:13, on pace to log its steepest one-day decline since April 9, when global markets reeled from U.S. President Donald Trump’s tariff announcements. The domestically focused FTSE 250 dropped 1.7%, heading for its worst single-day performance since late September. Reports indicate that British Finance Minister Rachel Reeves has decided against raising income tax in this month’s budget, a move that has significantly eroded investor confidence in the government’s capacity to achieve its fiscal targets, and this uncertainty drove gilt yields upward.

The market turmoil spread across various asset classes, with the sterling depreciating by almost a quarter of a percent, while equities faced a significant and broad downturn. Heavyweight banking stocks led the losses with a 3.3% drop, while precious metal miners experienced a decline of 4.4% as gold prices decreased. Global market sentiment shifted to a negative outlook following hawkish remarks from U.S. Federal Reserve officials on Thursday, which cast doubt on the likelihood of a December rate cut. Additionally, uncertainty surrounding U.S. economic data and worries about an AI bubble further heightened investor anxiety, adding to the already fragile risk environment.

In the UK, the aerospace and defence sector fell 2.6%, with engineering firm Rolls-Royce declining over 2% for the second straight session, while Melrose Industries edged 2.6% lower after the GKN Aerospace owner maintained its full-year guidance. The investment banks and brokerages sector experienced a decline of 2.6% and is projected to face an 11% decrease this week, marking the most significant drop among all sectors. Commercial property firm Land Securities reported a drop in property valuations in the first half of its fiscal year, resulting in a 5.4% decline in its shares and driving further weakness across real estate-linked stocks.

In a rare bright spot, shares of hospitality company PPHE Hotel Group surged 13.5% following news that key investors were considering a stake sale, offering a brief lift to an otherwise gloomy session. The energy sector experienced the smallest losses as oil climbed following a Ukrainian attack that halted exports at a Russian port, providing some support to the sector even as broader market pressures persisted. Overall, the confluence of political uncertainty, rising gilt yields, weakening global sentiment, and sector-wide declines reinforced the FTSE’s trajectory toward one of its most challenging trading days in months.