Banking Stocks Fuel Market Rally Ahead of Budget
London's financial markets experienced a significant uplift on Tuesday as banking stocks surged amid growing speculation that Chancellor Rachel Reeves will spare the sector from additional tax hits in her upcoming budget announcement. The FTSE 100 index closed up 74.62 points, representing a 0.8% gain to reach 9,609.53, driven largely by strong performances from major high street lenders.
Banking Sector Leads Gains
The rally was particularly pronounced in the banking sector, with Lloyds Banking Group rising 3.8%, while NatWest Group climbed 3.7% and Barclays advanced 2.4%. The positive momentum extended to the FTSE 250, which ended up 205.83 points (1.0%) at 21,617.41, and the AIM All-Share, which closed up 4.93 points (0.7%) at 742.09.
According to reports from the Financial Times, Chancellor Reeves is unlikely to impose further tax increases on UK banks, calming fears that had been weighing on the sector. The speculation provided much-needed relief to investors who had been concerned about potential additional burdens on financial institutions.
Budget Expectations and Economic Concerns
Chancellor Reeves is scheduled to deliver her budget statement to Parliament around 12:30pm on Wednesday, following Prime Minister's Questions. The budget is expected to contain substantial tax increases as the government seeks to cover the anticipated fiscal deficit and build buffers against future economic shocks.
Expected measures include an extension to the freeze on personal tax allowances, a mansion tax, increases in betting duties, and changes to salary sacrifice schemes. However, economists have expressed concerns about this approach, with Citi's Callum McLaren-Stewart describing it as "politically palatable, but economically problematic."
Kallum Pickering at Peel Hunt echoed these concerns, warning that a "haphazard patchwork of smaller anti-growth tax increases" would represent a "bad outcome" for the economy.
Market Movements and Additional Measures
Ahead of the budget announcement, the pound strengthened to US$1.3183 at the time of London's market close, compared to $1.3104 on Monday. The yield on the UK 10-year gilt decreased by 5 basis points to 4.49%.
Reports also suggest the chancellor may announce a stamp duty holiday for new listings on the London Stock Exchange, which would see the 0.5% stamp duty tax waived for new listings for up to three years. Emma Wall of Hargreaves Lansdown described this as a "welcome boost" for the UK stock market, which has been losing initial public offerings to New York in recent years.
In European markets, the CAC 40 in Paris closed up 0.8%, while the DAX 40 in Frankfurt ended 1.0% higher. New York stocks showed mixed performance, with the Dow Jones Industrial Average up 0.7% and the S&P 500 index up 0.2%, while the Nasdaq Composite fell 0.2%.
Notable Stock Performances
Among individual companies, Beazley fell 9.2% after analysts indicated that a planned $500 million investment to establish a new Bermuda platform would likely result in a "material" reduction in share buyback expectations. The Lloyd's of London insurer announced the investment alongside mixed trading results for the first nine months of 2025.
In contrast, Kingfisher rose 6.0% after raising its profit guidance for the second time in three months. The DIY retailer, which owns B&Q and Screwfix, now expects full-year adjusted pretax profit between £540 million and £570 million.
On the FTSE 250, AO World jumped 1.5% as it raised its profit forecast following "continued positive trading," while Baltic Classifieds slid 2.2% after JPMorgan double-downgraded the stock to "underweight" from "overweight."
In commodity markets, Brent oil was quoted at $61.71 per barrel, down from $62.90 on Monday, while gold rose to $4,132.40 per ounce from $4,097.64.
