- The government announced its mini budget on Friday, announcing huge tax cuts.
- Following that, the pound sterling witnessed a drastic fall to a record-low level against the US dollar on Monday.
Following Chancellor Kwasi Kwarteng's announcement of huge tax cuts through the mini-budget on Friday, the pound sterling slipped to record-low levels against the US dollar on Monday. In the early hours, the sterling tumbled by 4.9% to $1.0327, the lowest since 1971. While it recovered to around $1.08 later, it significantly impacted the UK markets as investors were concerned over the tax cuts.
Kwasi's support package is expected to cost the government about £45 billion and includes several measures, like doing away with the top rate of tax for the highest earners, reversing the planned rise in corporate tax, and removing the cap on bankers' bonuses.
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The pound's fall prompted the Bank of England (BoE) to reaffirm its commitment to keep inflation in check, saying it won't hesitate to raise the interest rates again if needed. In anticipation of another rate hike, several lenders have withdrawn mortgage offers.
Is mini-budget favouring banks?
It is believed that banks have benefitted from the mini-budget. With the government scrapping the cap on bankers' bonuses, the lenders can now structure the pay packages of their staff accordingly, thereby providing them with the potential to reduce their fixed costs. Besides, raising the threshold for paying stamp duty is aimed at boosting the housing market, and it would also increase the profits for mortgage lenders.
Let us now look at some FTSE-listed banking stocks and how they have been faring in the current situation.
NatWest Group Plc (LON: NWG)
The leading British bank, NatWest, boasts a market cap of £22,582.07 million, and the stock is a constituent of the FTSE 100 index. In the past 12 months, its price has slipped by 1%, while the year-to-date return is at -4.55%. Its EPS currently stands at 0.25. The lender's shares were trading 0.81% lower at GBX 231.80 as of 11:12 am GMT+1 on Tuesday.
Lloyds Banking Group Plc (LON: LLOY)
Another British banking and financial services provider is Lloyds Banking Group, listed on the FTSE 100 index. The bank boasts a market cap of £30,424.40 million, with a positive EPS of 0.08. Over the past 12 months, the share price has tumbled by 2.15%, while it has fallen by nearly 7% on a year-to-date basis. Shares of Lloyds Banking Group were trading at GBX 44.47, down 0.54% as of 11:18 am GMT+1 on Tuesday.
Barclays Plc (LON: BARC)
The multinational bank enjoys a market cap of £25,620.36 million and is also a constituent of the FTSE 100 index. It has an EPS of 0.38, and over the past 12 months, its stock price has fallen by over 13%. The year-to-to-date return also stands in the negative territory at -15.04%. Shares of Barclays were trading 1.33% lower at GBX 158.68 as of 12:33 pm GMT+1 on Tuesday..
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