The yield on UK benchmark 10-year bonds stood at 4.48% on Monday afternoon, up from 4.45% on Friday, suggesting that traders have sold UK government debt.

Although there has not been any bond market turmoil similar to what followed the 2022 “mini-budget” of Liz Truss and Kwasi Kwarteng, yields have moved higher. This reflects higher borrowing from the UK government. More borrowing means more bond issuance, which generally makes prices fall.

It comes ahead of an interest rate decision from the Bank of England (BoE) later this week. Money markets expect Threadneedle Street will be slower to cut rates.

Andrew Wishart, senior UK economist at Berenberg, an investment bank, said: "It is customary for the BoE to brush off changes in fiscal policy, but it would have to be tone deaf to do that this time around.

"Monetary policymakers will surely have to take notice of the Office for Budget Responsibility explicitly raising its interest rate assumptions 25 basis points above market pricing to account for the likely market reaction to the change in the fiscal stance.

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"By raising the 10-year gilt yield from 4.32% at the pre-budget close to 4.46%, financial markets have done as they were told. It is time for the BoE to follow."

Berenberg now thinks that the Bank will make one cut less than previously expected, ending up at 4.25% bank rate in the second quarter of 2025, instead of 4.0% in the third quarter.

Meanwhile, across the pond, rising bets on a win for Republican candidate Donald Trump in Tuesday's presidential election in recent weeks had lifted bond yields, the US dollar and bitcoin. However, since a new poll showed Democratic candidate Kamala Harris leading in Iowa, bond yields have now tumbled, easing pressure on stocks.

Bill Maldonado, chief executive officer at Eastspring Investments, told Bloomberg TV: “It’s impossible to call at this point.

“We’ve heard Trump talking about tariffs and other measures, but do we really know what’s going to get implemented in what manner? It’s almost impossible to position for it.”

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "Investors are bracing for a week of potential volatility, with the highly fractious US presidential election in focus and key interest rate decisions looming. For now, the FTSE 100 (^FTSE) has shaken off nervousness and opened in the green, making fresh gains after Friday's recovery.