UK Chancellor Reeves is expected to unveil the country's annual budget on November 26th, according to sources familiar with the matter. This event is becoming increasingly crucial for the struggling Labour government.

This major annual political event is gradually becoming a significant test for Reeves. Economists estimate that she may need to raise taxes or cut spending by as much as £51 billion ($68 billion) to fill the "black hole" in public finances and restore her fiscal buffer, which currently stands at less than £10 billion.

Policy reversals, such as concessions on cutting winter fuel allowances for pensioners and abandoning plans to reduce disability benefits, have contributed to the growing gap that Reeves must address in public finances. She has also been hit by higher borrowing costs related to persistent inflation concerns and worries about the UK's substantial debt burden, as global yields continue to rise.

Following a series of unpopular spending cuts and subsequent policy reversals that have led to a collapse in Labour's poll numbers and a sharp decline in their personal approval ratings, the autumn budget is widely viewed as a defining moment for Starmer and Reeves. Their challenge lies in repairing the UK's fragile public finances while minimizing backlash from an already discontented public, skeptical financial markets, and restless MPs within their own party.

Meanwhile, the fiscal watchdog - the Office for Budget Responsibility (OBR) - is expected to downgrade productivity estimates, which is also anticipated to result in lower UK growth forecasts, further complicating the Chancellor's budget calculations.

As UK government bond yields rise, the pound is also depreciating. The combination of rising bond yields and currency depreciation is typically viewed as a warning signal of fragile investor confidence.

In the City of London, virtually no one expects Reeves to rewrite her fiscal rules or abandon Labour's pre-election pledge not to tax "working people." She is likely to adopt the International Monetary Fund's (IMF) recommendation to conduct binding OBR forecasts only once annually, avoiding the scramble every six months to meet targets based on highly uncertain five-year projections.

This would spare her some pain next spring, but she is simultaneously expected to search extensively for substantial additional revenue sources, which markets are watching closely.

"This is the classic 'you wouldn't want to start from here' situation," said Simon Wells, HSBC's Chief European Economist. "This will be a budget that just about manages to comply with the rules - basically all she can do."

Not a Unique Phenomenon?

Despite pessimistic predictions about a 1970s-style budget crisis, market observers quickly point out that rising yields, particularly for long-term government bonds, is not a phenomenon unique to the UK.

"There's a lot of hysteria about UK borrowing costs, but if you look at what's happening to gilt yields, it's not that different from what's happening in other markets," said Neil Shearing, Chief Economist at Capital Economics.

On Tuesday, the UK Treasury's Debt Management Office conducted an auction of 10-year bonds that was oversubscribed by a factor of 10. While this demonstrates sufficient market demand for UK government debt, the yield was the highest since 2008.

The global upward "drift" in long-term bond yields has several primary causes, including France's severe budget crisis, inflationary pressures in Japan, and most importantly, US President Trump's extraordinary attacks on Federal Reserve independence.

Economists generally believe that Fed independence strengthens its credibility in fighting inflation. The outcome of Trump's legal battle with Fed Governor Cook remains unclear, but this ongoing struggle to place the institution under political control appears to have begun.

In the short term, US interest rates appear to be declining against the backdrop of what this president has long demanded, after Fed Chair Powell used his recent speech at the Jackson Hole conference to hint at a change in stance, noting weakness in the US labor market.

However, in the long term, given Trump's attacks on a series of key institutions and his plans to borrow trillions more dollars, investors appear to be growing concerned about the credibility of US economic management. These concerns have been manifested through long-term US Treasury sell-offs. Gold has also surged to historic highs, another potential sign of investor anxiety.

Regardless of how global this recent bond market sell-off may be, it only adds to the enormous pressure facing Reeves.