FTSE 100 Stumbles After Banking Sell-Off as Tax Rumors Shake Market Confidence

29 August 2025

Signage is seen outside the LSEG (London Stock Exchange Group) headquarters in Paternoster Square, London, Britain, April 25, 2025. REUTERS/Toby Melville/File Photo

By late August, London’s stock market that had recently seemed unstoppable began to falter. The FTSE 100 slipped into its largest weekly drop in nearly five months, closing lower for a fourth straight day. Heavyweight banks led the slide, dragging the blue-chip index down by 0.3 percent and pushing the domestically focused FTSE 250 down 0.6 percent — marking its first monthly loss in five months. This sudden cooling off followed weeks of red-hot gains that had lifted the index to fresh record highs.

At the heart of the sell-off were fresh speculations about a looming tax—one aimed squarely at the banking sector. A think tank, the Institute for Public Policy Research, proposed that Chancellor Rachel Reeves tap into the massive interest payments banks earn from holdings at the Bank of England. Authorities believe a levy on these earnings could help plug a substantial shortfall in public finances. The idea sent ripple effects through the market, unsettling investors who fear such a levy would dent bank earnings and stymie lending.

Banks occupy oversized positions in the FTSE top tier, so slipping bank stock prices reverberated across the broader index. NatWest and Lloyds took particularly hard hits, shedding around 4.5 percent and 4.8 percent respectively, while Barclays dropped about 2.2 percent. The fear was simple: if banks are under siege, the entire market could buckle.

Yet even amid this volatility, not all sectors were sinking. Precious metal miners, notably Hochschild Mining, Fresnillo, and Endeavour Mining, gained between 1.8 percent and 3 percent as rising gold prices drew safety seekers. Luxury names like Burberry and Watches of Switzerland, on the mid-cap index, registered modest declines—2.4 percent and 2 percent respectively—highlighting investor caution even among high-end consumer stocks.

Meanwhile, one unexpected winner emerged in the form of JTC, a financial services firm flying under the mid-cap radar. Permira, the private equity giant, reportedly approached JTC with a takeover proposal, sending its shares soaring nearly 18 percent in a single day.

Taken in context, this week’s retrenchment underlines a contrasting narrative. Just days earlier, optimism over potential U.S. interest rate cuts had propelled global markets to fresh highs. Yet doubts about the Fed’s independence—and suggestions of political interference—have weighed on sentiment. As investors eye key inflation reports from the U.S. and eurozone, uncertainty remains high on both sides of the Atlantic.

The sequence of events speaks to the market’s delicate balance. Confidence can rise swiftly with the mere hint of looser policy. Yet a glimpse of fiscal overreach—even one proposed by independent think tanks—can rapidly recalibrate expectations, reinforcing how political and economic narratives are now inseparable from financial markets.