Closing post: More thatn £6bn wiped off UK bank shares today
And finally… the London stock market has closed, with losses across the UK banking sector.
The possibility that Rachel Reeves might bring in new taxes on the sector in this autumn’s budget has sparked a wave of selling.
NatWest ended the day as the FTSE 100’s biggest faller, down 4.85%.
Lloyds Banking Group (-3.3%) and Barclays (-2.2%) ended in the list of top fallers, along with UK retailers JD Sports (-4%) and Kingfisher (-2.2%).
HSBC lost 1%.
The falls mean that over £6bn was wiped off the UK banking sector today, as fresh calls for a windfall tax on large lenders in the autumn budget spooked investors.
As my colleague Kalyeena Makortoff explains:
Calls for a tax grab, in a paper written by the Institute for Public Policy Research (IPPR) thinktank, took a toll on some of the UK’s biggest high street banks.
The IPPR’s report calls for a new tax on the big banks that would help to recover “windfalls” enjoyed by lenders as a result of an emergency economic policy known as quantitative easing, which was put in place after the 2008 financial crisis.
The policy involved the Bank of England buying up £895bn of bonds from the UK’s banks and crediting them with reserves at the Bank. Those reserves subsequently accrued interest at the central bank’s base interest rate: currently at 4%.
On that note, goodnight! GW
Updated
YouGov: t only 27% of Britons oppose requiring landlords to pay National Insurance on rental income
Another tax raising option for Rachel Reeves is to make landlords pay National Insurance on their rental income.
It emerged yesterday that the Treasury was considering a tax on landlords that will target income from rents, as part of the autumn budget.
YouGov have just release a poll which shows the measure could be popular with voters. Nearly half of those polled said they supported the idea, while just 27% opposed it, and 25% didn’t know.
Donald Trump’s elimination of the de minimis shipping exemption that allowed low-value packages to arrive to the US without trade duties is likely to hurt many UK businesses.
The Institute of Directors has found that roughly 30% of its members that export to the US are expecting some impact from the US decision to remove the de minimis threshold, which came into effect today.
Previously, most exports under $800 entered the US duty-free under a simplified process, but Trump has now closed this option.
Emma Rowland, trade policy advisor at the Institute of Directors, said:
“The additional tariff charge, customs documentation and data requirements at the border only compound the administrative burden for firms already grappling with an uncertain exporting landscape. This is a move that will predominantly impact smaller firms which do not necessarily have the resources to assume extra complexity in their international business.
The former Bank of England deputy governor Minouche Shafik is set to join Keir Starmer’s team as chief economic adviser.
In a boost to the prime minister’s office in the run-up to the autumn budget, Lady Shafik is expected to take on the role after a year heading a Foreign Office review of the government’s foreign aid spending.
A member of the House of Lords, Shafik resigned last year as the president of Columbia University after criticism of the treatment of Jewish students during anti-Isreal protests at the institution’s New York campus.
Shafik was previously head of the London School of Economics, a deputy governor of the International Monetary Fund and the top civil servant at the Foreign Office. In 2019 she was touted as a possible contender to replace Mark Carney as the Bank of England’s governor.
US consumer confidence fell in August
Another blow to the White House: US consumer confidence took a dive last month.
The University of Michigan has reported that its Index of Consumer Sentiment fell by 5.7% this month, to 58.2 points, down from 61.7 in July.
Consumers become gloomier about current economic conditions, and the outlook for the economy.
Surveys of Consumers director Joanne Hsu says:
Consumer sentiment confirmed its early-month reading, moving down about 6% from July. Sentiment now stands about 11% above readings from April and May but remains at least 10% below 6 and 12 months ago.
This month’s decrease was visible across groups by age, income, and stock wealth. Moreover, perceptions of many aspects of the economy slipped. Buying conditions for durable goods subsided to their lowest reading in a year, and current personal finances declined 7%, both due to heightened concerns about high prices. Expectations for business conditions and labor markets contracted in August as well.
That said, expectations for personal finances held steady this month, albeit at relatively subdued levels relative to a year ago
Back in the US, a key measure of inflation has risen.
US PCE core inflation, seen as the Federal Reserve’s favourite inflation measure, has risen to 2.9% in July on an annual basis, up from 2.8% in June.
In line with consensus forecasts but high if 2% is the Fed’s true inflation target:
— Mohamed A. El-Erian (@elerianm) August 29, 2025
US PCE core inflation, often known as the Federal Reserve’s favorite measure, edged higher to 2.9% in July as the increase in service sector prices picked up to its hottest rate in five months.… pic.twitter.com/xgdBZuHDOB
Canada's economy shrinking as exports decline
Canada’s economy has been dragged to the brink of recession by Donald Trump’s trade war, in an headache for prime minister Mark Carney.
Real gross domestic product (GDP) across Canada declined by 0.4% in the second quarter of 2025, the country’s statistics office has reported, following a 0.5% gain in the first quarter.
Statistics Canada explains:
The contraction in the second quarter was driven by significant declines in the export of goods, as well as decreased business investment in machinery and equipment. These declines were tempered by faster accumulations of business inventories, higher household spending and lower imports of goods.
Canada has been sparring with the Trump White House for months; in March, Canada imposed retaliatory tariffs on the US in response to new tariffs on steel and aluminum.
Last week, Carney said some countertariffs would be dropped, as Ottawa tried to end the trade war.
US trade deficit surges over $100bn in July
Newsflash: America’s trade deficit with the rest of the world widened sharply last month, as more goods poured into the US.
The US international trade deficit rose by 22% in July to $103.6bn in July, new data from the US Census Bureau shows. That’s an increase of $18.7bn compared with June’s deficit of $84.9bn.
The increase was due to a surge of imports into the US last month. That could be due to companies trying to front-run the latest tariffs from Donald Trump, which kicked in at the start of August.
Imports of goods in July rose to $281.5bn, $18.6bn more than in June. Exports of goods for July were $178.0bn, $100m less than June exports.
Bank lobby group UK Finance (unsurprisingly) oppose another tax on the sector, saying:
“Banks based here already pay both a corporation tax surcharge and a bank levy.
“Adding another tax would make the UK less internationally competitive and run counter to the government’s aim of supporting the financial services sector.”
UK house sales rose last month as activity continued its recovery following the end of the stamp duty holiday.
Official figures from HM Revenue and Customs showed property transaction rose 1% month-on-month in July.
It said there were 95,580 property sales last month, a 4% increase against July last year, following an increase in June.
This recovery followed a notable drop in house sales after changes to the stamp duty threshold at the start of April.
SFO admits more Libor rigging convictions may be unsafe
The Serious Fraud Office has admitted today that the convictions of five former traders for interest rate rigging may be unsafe.
Following the Supreme Court decision to overturn the conviction of two traders, Tom Hayes and Carlo Palombo last month, the SFO has looked at other cases involving the rigging of the Libor and Euribor rates.
It says:
We consider that the jury directions, given at Hayes’ and subsequently Palombo’s trial and which were the basis of the court’s judgment, may apply to Jonathan Mathew, Jay Merchant, Alex Pabon, Philippe Moryoussef and Colin Bermingham’s trials. Therefore, their convictions may be considered unsafe.
India’s economy grew faster than expected over the summer, new data shows, despite the threat of the Trump trade war.
India’s GDP expanded by 7.8% year-on-year in the April-June quarter, picking up from 7.4% in the previous three months, data released today showed.
Economists polled by Reuters had forecast a slowdown in growth to 6.7%.
Number of unemployed people in Germany passes 3 million mark
Over in Germany, the number of unemployed people has hit three million for the first time in a decade.
A total of 3.02 million people were unemployed in August in seasonally unadjusted terms, with an increase of 46,000 in the number of people out of work from the previous month.
Labour office head Andrea Nahles says:
“The labor market is still shaped by the economic slump of recent years.”
If you account for seasonal factors, though, the number of unemployed decreased by 9,000 to 2.96 million.
Even so, the rise in joblessness intensifies the pressure on chancellor Friedrich Merz to reform and stimulate the German economy.
Speaking in France today, Merz responded to the data:
“The rise in unemployment is not unexpected. However, the figure illustrates how necessary reforms are for more growth and employability. The German government will focus on this.”
£7bn wiped off UK banks
The bank share selloff has gathered pace.
NatWest are now down 4.7%, followed by Lloyds (-4.5%) and Barclays (-3.7%), with HSBC down a more modest 0.5%.
By my maths, this wipes around £7bn off the value of the UK’s Big Four banks.
UK stock market ends week on 'sour note' amid bank tax fears
The drop in bank shares has pulled down the wider London stock market.
The FTSE 100 share idex is down 25 points, or 0.27%, at 9192 points this morning
“The UK stock market ended the week on a sour note amid suggestions that the government could help to fill its fiscal hole with a new tax on the banking sector,” says Russ Mould, investment director at AJ Bell, adding:
“Some of the biggest names in the FTSE 100 are lenders so if they’re out of favour on the stock market, it acts as a drag on the whole UK blue-chip index.
“NatWest, Lloyds and Barclays were the FTSE 100’s biggest fallers on Friday morning as investors wondered if the era of bumper profits, dividends and buybacks is now under threat.
“These companies have enjoyed a strong run on the stock market in recent years, and they’ve also played an important role in lending money to small and large businesses which helps to create jobs and support the UK economy.
“The timing of the tax debate, fuelled by a report from think-tank IPPR, is unfortunate given it coincides with a new poll from Lloyds suggesting a rise in business confidence, despite cost pressures. This positive sentiment could be threatened if businesses take the view that a new tax on banks might force lenders to tighten their lending criteria.
P&O Ferries have confirmed that CEO Peter Hebblethwaite is resigning, explaining:
“Peter Hebblethwaite has communicated his intention to resign from his position as Chief Executive Officer to dedicate more time to family matters. P&O Ferries extends its gratitude to Peter Hebblethwaite for his contributions as CEO over the past four years.
“During his tenure the company navigated the challenges of the COVID-19 pandemic, initiated a path towards financial stability, and introduced the world’s first large double-ended hybrid ferries on the Dover-Calais route, thereby enhancing sustainability. We extend our best wishes to him for his future endeavours.”
Sky: Controversial P&O Ferries boss Hebblethwaite to quit
Sky News are reporting that Peter Hebblethwaite, the chief executive of P&O Ferries, is leaving the company.
Hebblethwaite, who was voted the “Worst Boss in the World” by trade unionists in 2022, has reportedly resigned for personal reasons.
Hebblethwaite attracted heavy criticism in 2022 after P&O controversially fired 800 crew without warning, and replaced them with low-paid agency staff working longer hours.
He subsequently receivd a pay rise of at least 55%.
India's rupee hits record low after Trump doubles tariffs
India’s currency has sunk to a record low, on fears that US tariffs will hurt its economy.
The rupee has dropped by -0.7% today to 88.23 rupees to the dollar, its weakest level on record.
Traders sold the rupee after Washington imposed an additional 25% tariff on Indian goods this week, doubling the total duties faced by the South Asian nation to 50%, as a penalty for buying Russian oil.
The tariffs, which came into effect just after midnight on Wednesday in Washington, risk inflicting significant damage on the Indian economy and further disrupting global supply chains.
Defence stocks rise after Germany's Merz says Putin-Zelenskyy summit won’t happen
With bank shares sliding, investors are piling into defence stocks instead.
Babcock (+1.4%), Melrose (+0.95%) and BAE Systems (+0.7%) are all among the FTSE 100 risers, as optimism over a breakthough in the Russia-Ukraine war fades.
German chancellor Friedrich Merz told reporters last night that there was “obviously” not going to be a meeting between President Zelenskyy and President Putin, despite Donald Trump’s push for a peace deal.
Bloomberg’s Paul J Davies isn’t convinced by the IPPR’s call for a windfall tax on the banks.
Posting on Blue Sky, he argues that it would be paid out of the interest that would otherwise go to savers, suggesting it could actually function as a “backdoor wealth tax”.
But Davies also questions how much money new bank taxes would raise, posting:
They are also talking again about a special extra profit tax for banks - Rayner suggested upping total take from 28% to 30%. Do you know how much this will raise? Based on OBR forecasts it would bring in an extra
<drum rolls>
£275m per year.
<sad trombone>
Kathleen Brooks, research director at XTB, fears the swirl of budget rumours could hurt confidence (undermining the rise in morale this month).
She explains:
The decline in UK shares are led by the banks, which are all weighing on the FTSE 100 as rumours swirl of yet another tax rise, this time a windfall tax on lenders. Financials are down 1% on Friday, led by a 3% drop for NatWest, a 2.5% drop in Lloyds and a 2% fall for Barclays. The drip feed of potential tax rises to be included in this budget have dominated the papers this month, however, so far, the FTSE 100 has been resilient to this. However, now that it seems Rachel Reeves is going after the FTSE 100’s big hitters like banks, this could weigh on the index as we lead up to the Autumn budget.
US stocks outperformed their European peers in August, with the S&P 500 rising by 2%, compared to a 0.8% gain for the FTSE 100. This gap could widen, especially if we get the expected interest rate cuts from the Federal Reserve this year, at the same time as the UK government seems focused on squeezing businesses and consumers with multiple tax increases later this year, which is eroding confidence and dimming UK growth prospects further.
UK banks are under pressure, reports Richard Hunter, head of markets at interactive investor.
He explains:
Overnight weakness in sterling would normally support the FTSE 100 given its proliferation of overseas earnings, but reports of a potential windfall tax on the banks more than offset any hopes of a bright open.
The domestic banks were worst hit, with NatWest and Lloyds losing around 3%, while the more diversified groups such as Barclays and HSBC limited losses to around 1%. Unfortunately, any such rumours are likely to have an exaggerated impact given the government’s obvious need to raise more income in an attempt to mitigate its financial difficulties.
UK bank shares fall as City fears budget tax raid
Shares in UK banks are falling this morning as the sector fears it could be targeted in the autumn budget.
NatWest (-3.7%), Lloyds Banking Group (-2.8%) and Barclays (-2.3%) are leading the fallers on the FTSE 100 share index, reflecting rising concerns that chancellor Rachel Reeves could target banks to help shore up the UK’s public finances.
The IPPR think tank is this morning proposing that Rachel Reeves should levy a new bank tax. They argue that a “Thatcher-style tax on bank windfalls” could raise billions for public services.
The IPPR points out that the UK government is currently spending billions of pounds a year compensating the Bank of England for losses on its quantitative easing programme, which is now being unwound.
The BoE is also paying out higher interest rates on banks’ reserves than it is receiving on the bonds it still owns through QE.
In total, these losses amount to a £22bn-a-year hit to the public finances, according to the IPPR, which is calling for the Treasury to tax the big banks on their QE-related reserves.
Carsten Jung, associate director for economic policy at IPPR, said:
“The Bank of England and Treasury bungled the implementation of quantitative easing. What started as a programme to boost the economy is now a massive drain on taxpayer money. Public money is flowing straight into commercial banks’ coffers because of a flawed policy design. While families struggle with rising costs, the government is effectively writing multi-billion-pound cheques to bank shareholders.
“This is not how QE was meant to work – and no other major economy does it this way. A targeted levy, inspired by Margaret Thatcher’s own approach in the 1980s, would recoup some these windfalls and put the money to far better use – helping people and the economy, not just bank balance sheets.”
The Financial Times reports that fears are growing in the City of London that Reeves could announce a surcharge on the banking sector’s profits, or a new bank levy.
One City figure told the FT:
“We aren’t stupid. There’s a bunch of Labour MPs, including Angela Rayner, who are looking for ways to get more money. Financial services are an obvious target.”
Financial Times: City fears mount over Reeves’ tax raid
— George Mann (@sgfmann) August 28, 2025
on banks to help fill £20bn fiscal hole #TomorrowsPapersToday pic.twitter.com/WsCSMGft2I
Dollar on track for 2% fall in August
In the financial markets, the US dollar is on track to record a 2% monthly drop as traders anticipate Donald Trump will soon get his way on interest rate cuts.
The dollar index, which measures the U.S. currency against six major peers, is slightly higher this morning but still course for a 2% decline for the month.
The index is down around 10% this year, hit by anxiety over US economic policy as Trump’s trade wars pushed investors towards alternative assets.
Trump’s attempts to remove Lisa Cook from the Fed board, and his plans for a replacement for chair Jerome Powell, show that the White House is determined to push for lower interest rates.
Deutsche Bank told clients this morning:
Investors remain heavily focused on the Federal Reserve’s independence, and today there’s going to be an emergency hearing about Lisa Cook’s position on the Board of Governors that’s due to start at 10am EST.
So this is going to be critically important for markets, as her removal would give President Trump the opportunity to refashion the Board of Governors in a more dovish direction.
UK companies are also eyeing up more price rises.
In August, the net balance of firms expecting to raise prices over the next year was up four points to 65%. 67% (from 65%) of firms said they would raise prices in the coming year, while those anticipating price reductions fell slightly to 2% (from 4%), Lloyds says.
There’s good news for workers, too, in the latest business barometer.
Wage growth expectations increased by four points, with 38% forecasting average pay increases of 3% or more. Firms expecting to increase wages by 4% rose five points to 23%, while those forecasting 5% or higher also climbed five points to 12%.
That would help employees handle the rise in UK inflation, which hit 3.8% in July. But it might concern the Bank of England, where some policymakers fear that increased earnings could lead to a further rise in prices…
Updated
Businesses across five of the UK’s twelve regions and nations saw a rise in confidence in August, but the increase was not universal.
London, the East of England and the West Midlands saw strong improvements this month. However, firms in Wales were less confident, with a fall of 13 points, Lloyds reports.
UK business confidence rises despite jitters over economy
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Despite the tides of gloom lapping the UK economy, business confidence has pushed up this month.
The latest poll of business morale from Lloyds Banking Group shows that British businesses’ confidence in their trading prospects has hit the highest level since 2014, after rising sharply this month.
According to Lloyds, manufacturers’ confidence is the highest in a decade – welcome news for the government as chancellor Rachel Reeves and her team work on the autumn budget.
Retailers’ confidence also increased, to a five-month high, but construction confidence fell to a four-month low.
Interestingly, the Lloyds Business Barometer has found that hiring intentions increased for the fourth month in a row, despite cost pressures.
That indicates many businesses are coping with the £26bn increase in employers’ national insurance announced by Reeves last year, and the latest increase in the minimum wage.
Economic optimism edged down for the first time since April, though, indicating increased jitters about the economic outlook.
Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, explains:
“This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy. Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies.
“Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months.”
The agenda
7.45am BST: French GDP and consumer spending data
1.30pm BST: US trade data
1.30pm BST: US PCE inflation measure for July
3pm BST: University of Michigan US consumer confidence report
