Barclays and Lloyds shares sink as political storm puts banks in tax sights
The UK’s banking giants led a major sell-off across the FTSE 100 this morning as a combination of political hazards hit the London stock market.
Barclays was the top faller on the index shortly after market open, shedding over four per cent to 410.65p.
Natwest was not far behind, also losing over four per cent to hit 556.60p. Meanwhile, Lloyds shed just shy of four per cent to 94.42p.
The sell-off comes as Sir Keir Starmer’s premiership looks to be hanging in the balance with over 70 MPs calling for his exit and reports suggesting multiple cabinet members are seeking to get a timetable for his departure.
“There has been an unseemly rush to the exit in UK banks as investors worry that a change of PM will bring it a leader from the ‘soft left’ committed to finding new and inventive ways to boost the tax take, with banks firmly in their sights,” Chris Beauchamp, chief market analyst at IG, told Morning Wire.
“Much of the bounce in UK stocks has been based on the idea that the Labour government’s victory in 2024 brought with it a group of sensible politicians committed to fixing the country. That is poised to be blown apart as a leadership context hoves into view and higher public spending despite the parlous financial situation becomes a very real possibility.”
Soft left MPs make play for looser fiscal rules
The 10-year yield on UK gilts – a key indicator of the government’s cost to borrow – rose over 11 basis points to over 5.1 per cent this morning following the market open.
It came alongside the Tribune Group – a collective of over 100 soft left Labour MPs chaired by Louise Haigh – lobbying for a reset of the fiscal framework.
Haigh said the fiscal policy in the UK is “resolved in favour of caution” and added Britain’s “fiscal and institutional framework” is “unfit for purpose” as she called for major tax rises on wealth.
Banks were feeling the sting of this potential lurch to the left after being able to skirt tax raids in the two latest Budgets from the Labour party after relentless lobbying.
Lloyds and Natwest have both upgraded their income expectations for the year ahead as interest rates are expected to remain elevated as a result of the Iran war. This has led to renewed chatter around tax speculation with analysts viewing the sector as “ripe for a tax grab”.
“The working assumption is a new leadership ticket moves the party to the left,” Neil Wilson, UK investor strategist at Saxo Markets, said.
Iran war continues to rattle FTSE 100
Elsewhere, geopolitical turmoil on the international front was weighing on London’s blue-chip index.
Donald Trump has ramped up threats towards Iran as peace talks continue to wane with the US President branding Tehran’s latest counterproposal to end the war “totally acceptable”.
He also said the month-long ceasefire was on “life support,” which has sent the price of oil higher once more and helped rattle bond markets.
Brent crude – the international benchmark for oil prices – has risen over two per cent to $106.
Derren Nathan, head of research at Hargreaves Lansdown, said: “The potential for a fiscally looser successor may be weighing on rate expectations, but the inflationary influence of higher-for-longer oil prices is likely to be the bigger driver. “