The FTSE 100 index closed up 74.62 points, or 0.8%, at 9,609.53 on Tuesday, buoyed by a rally in banking stocks amid reports that the sector will avoid further tax hikes in Wednesday's Budget. The FTSE 250 rose 205.83 points, or 1.0%, to 21,617.41, while the AIM All-Share gained 4.93 points, or 0.7%, to 742.09.
High street lenders led the charge, with Lloyds Banking Group climbing 3.8%, NatWest Group advancing 3.7%, and Barclays rising 2.4%. The gains followed a Financial Times report suggesting Chancellor Rachel Reeves is unlikely to impose additional taxes on UK banks, easing fears of a sector-specific hit. The Chancellor will deliver her Budget statement to Parliament around 1230 GMT on Wednesday, after Prime Minister's Questions.
The Budget is expected to include significant tax increases to cover the fiscal deficit and build a buffer against economic shocks. Potential measures include extending the freeze on personal tax allowances, a mansion tax, higher betting duties, and changes to salary sacrifice schemes. However, economists have criticised this scatter-gun approach. Citi's Callum McLaren-Stewart called it "politically palatable, but economically problematic," while Peel Hunt's Kallum Pickering warned that a "haphazard patchwork of smaller anti-growth tax increases" would be a "bad outcome."
Reports also suggest the Chancellor may announce a stamp duty holiday for new listings on the London Stock Exchange, waiving the 0.5% tax for up to three years. Hargreaves Lansdown's Emma Wall described this as a "welcome boost" for the UK stock market, which has been losing out to New York for initial public offerings. Ahead of the Budget, the pound rose to $1.3183, up from $1.3104 on Monday, while the yield on the 10-year gilt fell 5 basis points to 4.49%.
In European markets, the CAC 40 in Paris closed up 0.8% and the DAX 40 in Frankfurt rose 1.0%. In the US, the Dow Jones Industrial Average gained 0.7%, the S&P 500 added 0.2%, but the Nasdaq Composite fell 0.2%. US economic data was mixed, with producer prices rising 2.7% year-on-year in September, in line with expectations, while retail sales grew 0.2% month-on-month, below the forecast 0.4% rise. Consumer confidence weakened in November, and the CME FedWatch tool now implies an 83% chance of a quarter-point rate cut in December.
In London, insurer Beazley fell 9.2% after announcing a $500 million investment to build a new Bermuda platform, which analysts said would materially reduce share buyback expectations. The company also reported mixed trading results for the first nine months of 2025.
