Shares of UK banks experienced notable declines following reports suggesting potential tax increases on the financial sector. This news prompted a swift reaction from investors, resulting in a significant drop in stock prices.

Among those affected were NatWest and Barclays, whose shares fell by 3.3% and 2.7%, respectively, erasing hundreds of millions of pounds from their market capitalization.

Lloyds Banking Group, recognized as the leading mortgage lender in Britain, saw its shares decrease by as much as 3.3% during trading, before recovering slightly to finish the day down 1.7%.

The possibility of increased taxes for banks was brought to light by the Prime Minister in a speech delivered from the rose garden at Downing Street. He stated, “There’s a budget coming in October and it’s going to be painful… Those with the broadest shoulders should bear the heavier burden.”

In response to concerns following Sir Keir Starmer’s address, the government reaffirmed its commitment not to increase the existing 25% corporation tax rate.

Dan Coatsworth, an investment analyst at AJ Bell, remarked, “No one is going to shed any tears if the banks are forced to hand over more of their profits. It’s about as easy a target as you can get.” He pointed out that banks have benefitted significantly from rising interest rates, contrasting their profits with the ongoing financial struggles faced by many citizens.

Contrarily, analysts from Citigroup expressed that a governmental tax on banks seems unlikely, citing prior opposition from the Chancellor before the election.

Simon French, chief economist at Panmure Liberum, indicated, “We would be surprised if the Chancellor does not propose a list of tax increases. However, making concrete predictions about which sectors Rachel Reeves might target for higher taxes is a challenging endeavor.”