The FTSE 100 ended Friday on the back foot as banking stocks came under pressure amid reports that the UK Government is considering a windfall tax on the sector.
The FTSE 100 index closed down 29.48 points, 0.3%, at 9,187.34.
The FTSE 250 ended 138.68 points lower, 0.6%, at 21,605.72 but the AIM All-Share finished up 2.89 points, 0.4%, at 764.10.
For the week, the FTSE 100 shed 1.3%, the FTSE 250 fell 1.0% and the AIM All-Share rose 0.4%.
Banking stocks in London were rocked by reports that Chancellor Rachel Reeves could target the sector to help shore up public finances.
Lenders NatWest, Lloyds Banking Group and Barclays PLC fell 4.9%, 3.4% and 2.2% respectively in London.
On Friday, a report by the Institute for Public Policy Research said the Treasury should impose a new levy to recoup “windfalls” made by lenders as a legacy of the Bank of England’s quantitative easing programme, undertaken in the wake of the financial crisis.
The think-tank said the UK taxpayer is spending £22 billion a year compensating the BoE for losses on the programme.
The scheme entailed the BoE purchasing hundreds of billions of pounds of government bonds, buoying commercial bank reserves at the central bank.
These are now being remunerated at the BoE’s official rate, which stands at 4.0%.
The IPPR recommended that the Treasury introduce a QE reserves income levy on commercial banks to save £7 billion to £8 billion a year over this parliament.
In addition, it suggests the BoE slows down quantitative tightening, by ending its fire sale of government bonds, to save more than £12 billion a year.
The Financial Times on Friday said fears are mounting that the autumn budget will target banks to help fill a £20 billion fiscal hole.
“Politically it is an easy target,” a senior banker told the FT. “No-one likes banks, they are seen as a whipping boy for the Government.”
Kathleen Brooks, research director at XTB, said August has seen a “torrent of leaks” from government and the Treasury about potential tax rises, ahead of the autumn budget.
“Tax rises that have been proposed include increases in capital gains tax, property tax rises, national insurance hikes on rental income and a levy on banks, among others.
“The impact of this drip feed of potential tax rises is eroding confidence and dimming the prospects for the UK economy. It is also starting to impact UK asset prices,” she said.
Faring better, ConvaTec, which rose 1.4% as interim chief executive Jonny Mason and interim chief financial officer Fiona Ryder picked up £167,000 of shares between them.
They took their interim roles after chief executive Karim Bitar went on a medical leave of absence earlier this month.
Prudential rose 2.3% as Bank of America said the insurer was its top sector pick, highlighting forecast dividend growth and share buybacks.
In New York at the time of the London equities close, the Dow Jones Industrial Average was down 0.4%, the S&P 500 was 0.7% lower, while the Nasdaq Composite was down 1.0%.
Across the pond, traders weighed a pick-up in inflation, albeit in line with expectations.
The Bureau of Economic Analysis said the headline personal consumption expenditures price index rose 0.2% month-on-month in July, slowing from 0.3% growth in June, and by 2.6% year-on-year, the rate unchanged from June.
Excluding food and energy, core PCE price index increased 0.3% on-month, the same pace of growth as in June, and by 2.9% on-year, accelerating from 2.8% in the 12 months to June.
The figures were in line with FXStreet-cited market consensus.
Core PCE is the Federal Reserve’s preferred inflationary gauge, and Friday’s reading will play an important part in how the FOMC acts at its September meeting.
The yield on the US 10-year Treasury was at 4.22%, flat from Thursday. The yield on the US 30-year Treasury was 4.93%, stretched from 4.89%.
The pound eased to 1.3510 US dollars late on Friday in London, compared to 1.3513 US dollars at the equities close on Thursday.
The euro rose to 1.1699 US dollars, against 1.1668 US dollars. Against the yen, the dollar was trading lower at 146.92 yen, compared to 147.02 yen.
In Europe, the CAC 40 in Paris ended down 0.7%, while the DAX 40 in Frankfurt closed 0.6% lower.
In London, takeover activity kept traders busy.
John Wood finally agreed a bid of about £210 million from long-term suitor Dar Al-Handasah Consultants Shair and Partners Holdings, known as Sidara, worth 30 pence for each Wood share.
In addition, Sidara said it will provide a 450 million US dollar capital injection into John Wood to provide financial stability, although the long-running takeover saga remains subject to several conditions.
John Wood chief executive Ken Gilmartin said the deal brings “us closer to finalising a challenging chapter in Wood’s history”.
“The acquisition by Sidara will solve our near-term liquidity challenges and strengthen the company in the longer term,” he added.
The agreement is subject to a number of conditions including publication of 2024 audited accounts on or before the end of October and the audit opinion not being the subject of any modified opinion in relation to the 2024 balance sheet.
Shares in Wood are currently suspended at 18.20p pending publication of 2024 accounts.
Meanwhile, JTC shot up 18% for a market value of £1.92 billion as it said its board has rejected a takeover proposal from private equity firm Permira Advisers.
Earlier on Friday, Permira said it approached the Jersey-based professional services company regarding a possible cash offer for the business.
Permira and JTC did not detail the terms of any potential offer.
However, Bloomberg reported, citing people with knowledge of the matter, that Permira has made a proposal to purchase JTC that values it at about £2 billion.
“We think there is quite a good chance of a bid – this is a market that PE has been active in and that Permira knows well,” analysts at RBC Capital Markets said.
A barrel of Brent traded at 67.41 US dollars late Friday, down from 67.51 US dollars on Thursday. Gold climbed to 3,445.38 US dollars an ounce against 3,407.04 US dollars on Thursday.
The biggest risers on the FTSE 100 were Rentokil Initial, up 9.0p at 365.0p, Prudential, up 22.2 pence at 988.6p, Fresnillo, up 35.0p at 1,788.0p, Endeavour Mining, up 44.0p at 2,536.0p, and ConvaTec, up 3.2p at 236.5p.
The biggest fallers on the FTSE 100 were NatWest, down 26.0p at 510.6p, JD Sports Fashion, down 4.0p at 96.0p, Lloyds Banking Group, down 2.7p at 79.5p, Barclays, down 8.2p at 360.4p and Kingfisher, down 5.9p at 257.4p.
Monday’s local corporate calendar has a trading statement from Workday partner and provider of IT services, Kainos Group, and half-year results from leisure and entertainment company, XP Factory.
The global economic calendar on Monday has a slew of manufacturing PMI releases, eurozone unemployment figures, and UK mortgage approvals data. US financial markets are closed for Labour Day.
Contributed by Alliance News
