WASHINGTON, D.C. — UK Chancellor Jeremy Healey signalled on Tuesday that the forthcoming Budget will include higher levies on banks, a move that sent the City’s financial‑services sector reeling as investors brace for tighter profit margins and compare the pressure with a still‑tightening U.S. monetary stance.

London’s FTSE 250 Financials index slipped 3.2% within minutes of the announcement, while the shares of the four largest banks fell between 2.8% and 4.1%. Short‑term gilt yields rose 12 basis points to 4.45%, reflecting heightened risk aversion and the prospect of a broader fiscal clamp‑down on the sector.

KEY POINTLondon’s FTSE 250 Financials index slipped 3.

Analysts warn that a higher bank levy—projected to rise from the current 1.5% of taxable profits to roughly 2.0%—could shave up to £1.3 billion from the combined earnings of the UK’s top five lenders. The extra cost may force banks to curtail dividend payouts, tighten credit‑risk appetites and revisit capital‑allocation plans.

The policy shift comes as the U.S. Federal Reserve keeps its benchmark rate in the 5.25%‑5.50% range and prepares for a policy meeting later this month. With global liquidity tightening, investors are gauging whether the UK’s fiscal tightening will compound the Fed’s tightening cycle, potentially pressurising equity markets worldwide.

“The proposed levy will erode profitability and could trigger a reassessment of dividend policies across the sector,” said Sarah Collins, senior analyst at Barclays. A spokesperson for Lloyds Banking Group added, “We are reviewing the budget proposals to assess impact on our capital plans and will communicate any adjustments to shareholders promptly.”

Market participants will watch the Budget speech later this week for concrete figures and any accompanying relief measures. Until then, the sector remains on edge, balancing domestic fiscal pressures against an already restrictive global monetary environment.

Key Takeaways

• The Budget is expected to raise the bank levy from 1.5% to about 2.0% of taxable profits.
• FTSE 250 Financials fell roughly 3% and gilt yields rose 12 basis points following the signal.
• The Fed’s policy rate remains at 5.25%‑5.50%, adding to global financial‑tightening pressures.

Investors should prepare for possible earnings revisions and monitor any subsequent guidance from the Treasury and the Bank of England, as the fiscal and monetary landscapes evolve in tandem.