(Reuters) -UK stocks slipped on Friday as gilt yields jumped on reports the British government had scrapped plans to increase income tax in its upcoming budget, though markets still secured modest weekly gains.

The blue-chip FTSE 100 fell 1.1%, marking its steepest one-day decline since April 9, when global markets reeled from U.S. President Donald Trump's tariff announcements. Despite the pullback, it rose 0.2% for the week.

The domestically focused FTSE 250 dropped 0.8%, while still ending the week with a 0.2% gain.

A government source said on Friday that Finance Minister Rachel Reeves has abandoned plans to raise income tax in this month's budget, alarming investors who had anticipated increases to address the expected fiscal shortfall.

Markets sold off sharply after the Financial Times first reported the news, and only partially recovered after other outlets, including Reuters, cited sources saying improved fiscal forecasts influenced the decision.

The 10-year government bond, or gilt, yield was set for its biggest one-day jump since July, while sterling declined 0.3%.

Losses in equities were broad-based, led by heavyweight banking stocks with a 2.2% drop.

Precious metal miners tumbled 2.4% as gold prices fell. [GOL/]

Market sentiment globally turned negative after comments from U.S. Federal Reserve officials on Thursday clouded prospects for a December rate cut, while uncertainty around U.S. economic data and concerns about an AI bubble added to investor anxiety.

In the UK, the real estate sector dropped 2.2%, with commercial property firm Land Securities falling 5.2% after the company reported a drop in property valuations in the first half of its fiscal year.

Melrose Industries dropped 1.2%, after the GKN Aerospace owner maintained its full-year guidance.

In a rare bright spot, shares of hospitality company PPHE Hotel Group surged 16.3% following news that key investors were considering a stake sale.

Separately, the Bank of England announced it would consider regulatory changes to improve life insurers' access to capital markets, responding to industry concerns about increasing difficulties in raising funds through equity and debt markets.

(Reporting by Utkarsh Tushar Hathi; Editing by Shailesh Kuber and Susan Fenton)