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 burdens in Wednesday's highly anticipated Budget announcement.
Market Rally Driven by Banking Sector
The FTSE 100 index closed up 74.62 points, representing a 0.8% gain to reach 9,609.53, while the more domestically-focused FTSE 250 saw an even stronger performance, climbing 205.83 points (1.0%) to settle at 21,617.41. The AIM All-Share index also finished in positive territory, adding 4.93 points (0.7%) to close at 742.09.
High street lenders led the charge, with Lloyds Banking Group rising 3.8%, NatWest Group climbing 3.7% and Barclays advancing 2.4%. The rally followed Financial Times reports suggesting Chancellor Reeves is unlikely to impose further tax increases on UK banks, alleviating concerns that had been weighing on the sector.
Budget Expectations and Economic Concerns
Chancellor Reeves is scheduled to deliver her Budget statement to Parliament around 1230 GMT on Wednesday, following Prime Minister's Questions. The Budget is expected to contain several substantial tax increases as the government seeks to address the projected fiscal deficit and build resilience against potential economic shocks.
Among the anticipated measures are an extension to the freeze on personal tax allowances, the introduction of a mansion tax, increases in betting duties, and modifications to salary sacrifice schemes. However, economists have expressed concerns about this multifaceted approach to taxation.
Callum McLaren-Stewart of Citi described the strategy as "politically palatable, but economically problematic," while Kallum Pickering at Peel Hunt warned that a "haphazard patchwork of smaller anti-growth tax increases" would represent a "bad outcome" for the economy.
Currency and Global Market Movements
Ahead of the Budget announcement, the pound strengthened against the US dollar, quoted at 1.3183 dollars at Tuesday's London close compared to 1.3104 dollars on Monday. Meanwhile, the yield on the UK 10-year gilt decreased by 5 basis points to 4.49%.
Reports also indicate the Chancellor may announce a stamp duty holiday for new listings on the London Stock Exchange, a move that Emma Wall of Hargreaves Lansdown said would provide a "welcome boost" for the UK market, which has struggled to compete with New York for initial public offerings in recent years.
In European markets, the CAC 40 in Paris closed up 0.8%, while Frankfurt's DAX 40 gained 1.0%. New York markets showed mixed performance, with the Dow Jones Industrial Average up 0.7% and the S&P 500 gaining 0.2%, while the Nasdaq Composite fell 0.2%.
Among individual London stocks, Beazley fell sharply by 9.2% after analysts suggested its planned $500 million investment in a new Bermuda platform would significantly reduce share buyback expectations. In contrast, Kingfisher rose 6.0% after raising its profit guidance for the second time in three months.
As investors await Wednesday's Budget details, all eyes will be on Chancellor Reeves's statement and its potential impact on the UK's economic trajectory and market stability in the coming months.
