The FTSE 100 had another underwhelming session on Friday, despite US equities reaching fresh highs overnight.
US stocks were buoyed by better-than-expected US GDP and Federal Reserve members calling for rate cuts. The S&P 500 closed at 6,501, up 0.3% overnight.
Unfortunately, there was little direct read-across for UK stocks, and the FTSE 100 was driven largely by sharp declines in banking stocks following suggestions that the government should launch a windfall tax on banks to help plug budget gaps.
The reports were not taken well by the banks or the FTSE 100 as a whole, and the index was down 0.4% at the time of writing.
“Shares in UK banks including Lloyds and NatWest have taken a hit as the idea of a tax raid on lenders was suggested by think-tank IPPR,” said Russ Mould, investment director at AJ Bell.
“It’s hardly a surprise that every cushion is being upended in the hunt for extra cash to fill the much-discussed black hole in the Treasury’s finances.
“The issue is whether taxing the banks more will end up stifling the very growth the government is keen to foster, by crimping lending to businesses and households alike.
“The banks will undoubtedly argue as such, and shareholders may not want to see any such raid either. The wider public may see it differently, given how HSBC, Barclays, NatWest and Lloyds are expected to earn some £44 billion between them worldwide in 2025, their third-best year ever, after 2023 and 2024.”
NatWest was the FTSE 100’s top decliner, with a 4% decline. Lloyds was close behind with losses of over 3%.
Barclays also lost around 3%.
Banks have played a significant role in the FTSE 100 breaking record highs this year, so news of a windfall tax will weigh on investor sentiment.
There was strength in Rentokil, Babcock, and Rolls-Royce, but not enough to keep the index anywhere near positive on the session.
US data due for release later on Friday will likely dictate trade going into the weekend as traders position themselves for shifting interest rate expectations.