Autumn Budget 2026: Healey's first test, UK stocks in the firing line

Even before John Healey starts speaking at his first Budget as Chancellor on the 28th of October, markets are already on edge. Ahead of that, the UK 30-year gilt yield briefly broke through 6% for the first time since 1998, and the FTSE 100 fell 1.7%, its steepest one-day drop since May. Behind all this? A global bond sell-off, tied to the Iran war and higher oil prices, but UK fiscal worries also created much of the drag.

Gilts are the bonds the government sells to fund its borrowing. When their yields rise, borrowing costs more, and the Chancellor has less room to manoeuvre. With income tax, National Insurance and VAT rises ruled out, expect a scattering of smaller, targeted measures rather than one big fix. Each creates winners and losers, which is where the opportunities sit.

Banks: windfall tax risk

The Treasury is reportedly weighing a time-limited windfall tax or a higher surcharge on bank profits. Healey told bank bosses on 6 October that he has not yet decided, while City figures warn it would hurt competitiveness. UK banks fell on the prospect, so some of the market worry may already be priced in. A softer outcome than feared could spark a relief rally in Barclays, Lloyds, NatWest and HSBC.

Housebuilders: policy help, rate pain

The planned "Your First Home" scheme would give first-time buyers an equity loan of up to 20% on new builds with just a 2.5% deposit. The news caused names like Barratt Redrow, Taylor Wimpey, Persimmon and Vistry to rally, but the effect soon wore off as the reality of higher mortgage costs, which are the bigger drag, sank back in. Berkeley Group looks more exposed if the council tax surcharge on £2 million plus homes is widened to £1.5 million, as has been reported.

Savings and pensions

One change is already confirmed. From April 2027, the Cash ISA allowance falls to £12,000 for under 65s, which is designed to nudge savers from cash towards shares and could support inflows at trading and investment platforms. Pensions are the bigger unknown. Talk of cutting the £268,275 tax-free lump sum is back, though the same rumour fizzled last year. Keep an eye on Legal & General, Aviva, Standard Life (formerly Phoenix Group) and M&G.

Defence

Healey is expected to stop short of committing to his own target of spending 3% of GDP on defence by 2030, leaving the date to next year's spending review, while funding the existing defence investment plan. That is a mixed message for BAE Systems, Rolls-Royce, Babcock and QinetiQ.

What is priced in?

Watch gilts first and sterling second, as that is where UK Budget reactions usually start. Traders are comparing this moment with the 2022 mini-budget, which triggered a gilt meltdown. If the OBR’s forecast looks shaky, or the savings on offer don’t feel believable, that script could play out again.

That said, sector-wide selling can drag down good companies for the wrong reasons. If the FTSE 100 sells off again after the Budget, look for quality names that have fallen with the crowd rather than because of their own results.

Past performance is not a guarantee of future results.

Companies mentioned in this article: Barclays, Lloyds Banking Group, NatWest, HSBC, Barratt Redrow, Taylor Wimpey, Persimmon, Vistry, Berkeley Group, Legal & General, Aviva, Standard Life, M&G, BAE Systems, Rolls-Royce, Babcock, QinetiQ, FTSE 100