London's Budget week: a 6% bank surcharge and four flat closes

The bank profits surcharge went up to 6%, not the 8% London had spent a fortnight pricing in — and that three-point gap was the week. Within hours of Chancellor John Healey sitting down on Wednesday, Lloyds, Barclays, NatWest and HSBC were up 3-4%, the 10-year gilt yield had eased from 5.34% to 5.31% during the speech itself, and an index that had drifted lower for two sessions had its floor back.

We flagged Wednesday on Monday morning, then again on Tuesday, then again on Wednesday. All five of our London notes this week were logged Cautious — an unbroken run — and that caution read the positioning correctly while reading the outcome wrongly. The FTSE 100 began the week from Friday's 10,690.36, sat at 10,686.54 on Tuesday, closed Budget day at 10,694.50 and Thursday at 10,722.07. Four closes inside 36 points. The violence everyone had braced for never turned up.

What actually moved London was oil and drug sales. Brent cleared $116 a barrel on Strait of Hormuz headlines, Shell, BP and AstraZeneca all beat, and an index weighted towards energy and pharmaceuticals held its ground through a Wall Street tech rout that took the Nasdaq Composite down 1.4% and South Korea's Kospi down almost 5%. October closed as the FTSE 100's first monthly gain in three months.

How the week unfolded

Monday's note set the agenda plainly: Wednesday's Budget, with HSBC and Reckitt on Tuesday as the warm-up. The backdrop was already strained. The 10-year gilt yield had climbed to around 5.4-5.5%, its highest since 2007, and the 30-year had topped 6% earlier in October for the first time since 1998 — the bond market's way of asking Healey for fiscal discipline. Sterling sat just below $1.34. Nobody wanted a position.

The warm-up went badly. HSBC's third-quarter numbers missed forecasts and pulled the banks down with them, and Tuesday closed 0.8% lower at 10,686.54, with Reckitt Benckiser and Severn Trent also softer. That was the week's low-water mark, and a company result set it rather than anything fiscal.

Wednesday then resolved almost everything at once. The surcharge rose from 3% to 6% for a 15-month window rather than to the 8% pre-Budget reporting had trailed, and gambling duties also landed milder than briefed. Gilt yields eased through the speech, sterling barely moved, and the index finished at 10,694.50 — "little changed", as we described it on Thursday morning, which was true of the headline and emphatically not true underneath it, where the banks ran 3-4% and GSK and the housebuilders went the other way. The fiscal rules survived with roughly £15bn of headroom intact.

The Federal Reserve's decision landed at 1800 GMT, after London had closed, exactly as Wednesday's note warned. The Fed held at 3.75%-4.00% in a 10-2 split, two governors dissenting in favour of a hike, and Wall Street took it calmly. From Thursday the agenda passed from Whitehall to the boardroom, and that handover made the back half of the week.

The names that moved it

HSBC appeared in four of our five notes, which makes it the name of the week by a distance, and it contrived to be both the problem and part of the cure: a revenue miss that cost the index 0.8% on Tuesday, then one of the four banks up 3-4% on Wednesday afternoon. By Friday the bank trade was handing some of that back, with NatWest among the laggards despite operating profit ahead of estimates — a useful reminder that relief at a tax that came in lower is a repricing, not a trend.

The oil majors did the heavier lifting. Shell reported on Thursday and rose 2.1% on its biggest quarterly profit since 2022 and a fresh $5bn buyback, carrying the index to a 0.26% gain on a day when Wall Street was selling. BP followed on Friday with underlying replacement-cost profit of $8.5bn against $2.2bn a year earlier, comfortably past the roughly $6.2bn consensus, on stronger refining margins and a higher crude price. Reported net profit was a thinner $4.7bn after $4bn of impairments and the dividend was held at 8.66 cents a share, so the share-price response was modest — but it was the clearest earnings beat of the week.

AstraZeneca was the other. Revenue rose 7% at constant currency to $16.2bn and core earnings came in at $2.79 a share against a $2.59 consensus, with Imfinzi's growth absorbing a 25% fall in Farxiga sales to US generic competition. Full-year guidance was reaffirmed and the 2026 dividend is going to $3.30 a share. Haleon also reported on Friday.

Further down the market, Monday's two openers earned the footnote they got: Computacenter raised full-year guidance again on hyperscaler demand for data-centre work, and Plus500 said revenue and earnings would come in ahead of expectations. Aston Martin Lagonda and Bank of Ireland updated on Budget day, when nobody was looking. Reckitt, Unilever, GSK, Standard Chartered, WPP and St James's Place all reported into a week whose oxygen one speech had taken; the week's movers can be sorted on the screener.

The mid-caps tell the other half of the story. The FTSE 250 closed Tuesday at 24,716.37 and was trading below 24,600 by Friday afternoon, lagging the large-cap index all week. London's outperformance was a composition effect — energy, pharmaceuticals, defensives — rather than a vote of confidence in the domestic economy. The Office for Budget Responsibility's downgraded growth forecast for next year, published alongside the Budget, and its view that inflation will not return to the 2% target until 2028, say much the same thing.

What to watch next week

The Bank of England's Monetary Policy Committee announces at 12:00 on Thursday 5 November, alongside a full Monetary Policy Report — one of the four forecast rounds of the year, and the first since the Budget. Markets ended this week pricing a November rise. The committee's following decision is scheduled for 17 December.

The Federal Reserve does not meet again until December, so US data carries the nearer-term signal. And the UK third-quarter reporting season runs on, with the banks that moved on Wednesday now having to show what the new surcharge does to their numbers.