Time to wrap up…

The International Monetary Fund has urged John Healey to target savings on pensions and welfare, instead of taxing Britain’s banks at the budget later this month.

Helge Berger, deputy director of the IMF’s European department, was asked about bank taxes after the Guardian revealed Healey plans to tap the sector for additional revenue.

Berger replied that given the UK’s historically high tax-to-GDP ratio, it might be better to “put the emphasis” on cuts.

He said if additional tax revenue were needed, reforming property taxes or VAT might be a good place to start.

He added:

“Ultimately, with taxes roughly at 40% of GDP – historically, for Britain, a high number – then of course balancing these measures on the fiscal [spending] side, doing a bit more there, makes good sense.”

More here:

Berger’s comments came as shares in some UK banks dropped today, as traders anticipated a tax hit in the budget. Lloyds Banking Group and NatWest both fell by around 1%.

News of Healey’s plans provoked a backlash from some quarters.

The CBI said the chancellor should:

avoiding further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres.”

City analysts also warned that a new bank tax raid might weigh on the stock market, or hurt pensioners who rely on bank dividends for income.

In other news:

The London stock market has closed higher tonight, despite the threat of new bank taxes looming over the City.

The FTSE 100 shares index has ended the day up 41.5 points, or 0.4%, at 10,881 points.

Bank stocks recovered some of their earlier fall, but NatWest finished the session down 1.2% with Lloyds Banking Group down 0.95%.

The Footsie benefited from investors looking to avoid the sell-off in technology stocks – the US Nasdaq index is down 1% so far today.

Bloomberg are reporting this afternoon that Chancellor of the Exchequer John Healey is considering introducing a new UK visa route for wealthy foreigners.

The goal would be to attract immigrants who can help spur economic growth.

Proposals under considerion, they say, include a visa program directing immigrants to invest in innovative and high-growth sectors. Applicants might also be able to pay a flat-rate tax in exchange for investing in “qualifying investments”.

Bloomberg’s Lucy White reports:

One option being considered by Healey’s team is a proposal by the Institute for Public Policy Research, which recommends a visa program directing immigrants to invest £5 million ($6.7 million) over five years in a vehicle overseen by the state-owned British Business Bank. The pooled funds would be directed into innovative and high-growth sectors and pay out a set rate of return “significantly lower than market rates.”

Under another proposal by lobby group Foreign Investors for Britain, applicants would pay £2.5 million minimum into “qualifying investments” such as those run by the BBB. In return, they’d be allowed to pay an annual flat-rate tax of £200,000 for up to 15 years.

The latest US economic data shows America’s economy is continuing to grow, thanks in part to the AI boom.

US industrial production rose 0.7% in September, beating expectations, led by investment in AI infrastructure, energy security and advanced manufacturing.

That follows a 0.1% rise in August.

Over on Wall Street, shares in AI company CoreWeave have tumbled again at the start of trading, as concerns grow over its borrowing levels.

CoreWeave are leading the fallers on the Nasdaq index, down 7%.

Yesterday, the cost of protecting CoreWeave bonds against default rose to the highest intraday level on record.

CoreWeave runs AI datacentres, funded by issuing high-yield debt.

Shares in CoreWeave fell sharply earlier this week – including a 15% tumble on Wednesday – before recovering some ground yesterday after Nvidia CEO Jensen Huang voiced support for the company.

Fawad Razaqzada, market analyst at StoneX, says:

CoreWeave was among the names caught up in the recent sell-off, although the stock recovered yesterday after Nvidia CEO Jensen Huang said the company’s financial position was improving and its cost of capital was falling. That is hardly an impartial endorsement, given Nvidia’s sizeable interest in CoreWeave, so the more important question is whether the recovery can be sustained once the immediate reassurance fades.

More broadly, this week’s price action suggests the market debate is beginning to shift. The question is no longer simply how large the AI opportunity can become, but how profitable the enormous investment required to realise it will ultimately be.

Bloomberg are reporting that the UK’s banking industry has “ramped up lobbying” against extra taxes planned by Chancellor of the Exchequer John Healey.

They are apparently warning that a hike could shrink economic output by £6bn over five years and hit areas outside London the hardest.

Bloomberg add:

Pushing a surcharge banks pay on top of a standard corporation tax to 8% from 3% would also cut lending by about £10 billion by 2029 and reduce investment into the UK, according to a letter sent earlier this week to Healey by David Postings, chief of industry lobby group UK Finance.

[£6bn, incidentally, is also an estimate for the amount of tax lost over the last three years from the cut in the bank surcharge to 3%….]

Demonstrators have been protesting against the IMF and the World Bank at their meeting in Bangkok today, for the second day running.

According to the Bangkok Post, they encountered a police blockade which prevented them walking to Queen Sirikit National Convention Center, where the annual meetings are being held.

The Assembly of the Poor put the number of local and international protesters at 1,000 but the Metropolitan Police Bureau estimated about 800.

Heather Stewart is the Guardian’s economics editor, reporting from Bangkok this week:

We’ve just been in the IMF’s Europe press conference, where the topic of bank taxes in the UK came up [following our report that the chancellor is poised to tax Britain’s banks].

Asked about the possibility at John Healey’s upcoming budget, Helge Berger, the economist who is deputy director in the IMF’s European department, suggested there might be better places to look to balance the books.

Berger pointed out that Healey’s predecessor, Rachel Reeves, had raised taxes in her budgets, saying:

“The last two budgets involved increasing government revenue, and ultimately there’s a moment where this becomes less productive but there’s still areas where Britain can make additional headroom available: modernising the property taxes or VAT, these are good examples. We wouldn’t recommend labour tax.”

Berger added:

“Ultimately, with taxes roughly at 40% of GDP - historically, for Britain, a high number - then of course balancing these measures on the fiscal side, doing a bit more there, makes good sense.”

He pointed to cost-cutting measures including removing the pensions triple lock, and “better targeting social benefits,” adding, “so I think that’s where you would put the emphasis, rather than the tax that you mentioned.”

Higher taxes on banks could have an impact on the FTSE 100 since the banking sector makes up nearly 20% of the UK blue chip shares index, says Kathleen Brooks, research director at XTB.

The UK’s banking sector has been extremely resilient this year and has performed positively, for example Lloyds Banking Group is higher by 20% in the past 12 months. The risk is that downward pressure will now build, and this will dim the attractiveness of the entire index.

We will need to wait for the Budget to get the details of this tax, afterall, this is the Labour Party and they are well known for their U-turns. The Chancellor may need to water down plans for a tax if he wants to avoid denting both the economy and the FTSE 100.

The pound has touched its highest level against the US dollar in over three weeks.

Sterling has gained half a cent to $1.3335, its highest level since 23 September.

Traders are expecting the Bank of England to raise interest rates in November – higher rates are typically good for a currency’s value.

Investors will also be weighing up the impact of the budget later this month – and wondering whether John Healey will maintain the UK’s fiscal headroom – the buffer for meeting its borrowing rules.

Matthew Ryan, head of market strategy at global financial services firm and FX specialists Ebury, says:

“The question that matters most to us is how the budget could affect the pound and the gilt market.

We see the fallout in markets as dependent on whether Healey can keep the economic damage to a minimum, while convincing markets that future spending plans won’t come at the expense of debt sustainability.”

Elsewhere in the markets today, South Korea’s Kospi share index has recorded its biggest weekly loss since October 2008, down 14.5% this week.

Although the Kospi did rise today (+2%), it was still a bad week for technology stocks – as investors worried about the borrowing, spending commitments and future profitability of AI companies.

As analyst Bill Blain of Windshift Capital puts it:

The reality is that while companies embraced AI aggressively as it first emerged, now they are figuring out how to use it effectively while keeping AI costs under control. A slowing, more careful, path towards corporate adoption has been missed by the market which remained wildly frothy about valuations.

British banking stocks have eased following last night’s reports that John Healey will tax the banks in the budget, says Angeline Ong, senior technical analyst at investing and trading platform IG

“A UK bank tax risk is now a base case. If it is confirmed on 28 October, it’ll be the size and timing that will be key.

If Healey does go ahead, shares of Lloyds and NatWest, which are almost entirely exposed to the UK, would likely be impacted most, and you are seeing this already in the share price reaction today. Barclays is partly exposed. HSBC is least exposed in the mix.”

Shares in UK banks are dropping at the start of trading, as investors react to the Guardian’s scoop that John Healey is poised to increase taxes on Britain’s banks in his 28 October budget.

Lloyds Banking Group are the top faller on the FTSE 100, down around 1.9%, with NatWest dropping by 1.6%.

Elsewhere in Bangkok today, Bank of England governor Andrew Bailey, was interviewed at the Institute of International Finance annual members’ meeting, being held across town in Bangkok.

With the BoE’s monetary policy committee due to set interest rates in three weeks’ time, Bailey said he was not yet seeing many signs of the “second round effects,” that would indicate inflation has spread beyond the energy sector.

Bailey said:

“I think ‌it’s too early, but to the extent we’ve seen evidence, so far it’s been ‌quite subdued.”

Heather Stewart is the Guardian’s economic editor, reporting from Thailand.

US Treasury secretary Scott Bessent hasn’t bothered to show up in Bangkok this week for the IMF/World Bank annual meetings, but Federal Reserve chairman Kevin Warsh is here.

He appeared on stage earlier today in a “fireside chat” with an old friend: the IMF’s managing director - Kristalina Georgieva.

Aside from lavishing praise on Warsh, Georgieva asked him about the potential economic impact of AI.

He said AI - for which he used Donald Trump’s preferred term, “Super Intelligence,” is, “probably the most consequential change to the US and the global economy in my lifetime to this point,” which is causing a “massive investment surge”.

Eventually, he said it will boost productivity - “there really is, I think a huge benefit to the global economy, to the US economy over the horizon.” But - with inflation rising sharply in the US - he said there are likely to be short-term bumps in the road.

“If you believe, like I believe, that it will make economies and countries that put it to good use, more productive, that it’s going to make it so that we will have more wealth, then that has to be a very good thing. But the path from where we are to there is likely to be a very bumpy one.”

Echoing the IMF’s warnings earlier this week about the potential for an AI-led market correction, Warsh added, “we really don’t know what the market structure is going to be of these new technologies. Who’s going to get to make the money? What are the consequences for those that bet that they were going to make money, but the market structure doesn’t allow it?” He said his attitude was one of optimism, leavened by seriousness.

In terms of the short-term outlook, it was not surprising given his rejection of “forward guidance,” that Warsh declined to give any sense of where interest rates might go, after last month’s increase. “I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings that we have in the balance of this year,” he said - prompting Georgieva to joke that he had disappointed half the audience.

The Confederation of British Industry has suggested John Healey should avoid “further sector-specific taxation”, such as a bank tax.

Louise Hellem, chief economist at the CBI, said:

“The financial services sector is vital to driving investment, innovation and business growth across the economy. Government has set the right direction through its Financial Services Growth and Competitiveness Strategy and the Leeds Reforms – the priority now is delivery.

“The autumn Budget should set the agenda for a competitive and predictable environment that turns those reforms into tangible progress, unlocking domestic investment, deepening UK capital markets and helping more firms to scale and grow.

“It should also avoid measures that would undermine competitiveness or weaken incentives to invest. With the business tax contribution already at a record share of receipts, that means avoiding further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres.”

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

Britain’s banks may be ‘part of the jewel’ in the UK economic crown, as chancellor John Healey put it yesterday, but that won’t protect them from being hit in this month’s budget.

John Healey is poised to raise the tax take from Britain’s banks in his 28 October budget, the Guardian understands, as the chancellor looks to fix the damage inflicted on the public finances by war in the Middle East.

As my colleagues Heather Stewart, Jessica Elgot and Kalyeena Makortoff reported last night, Healey has decided to tap the financial sector for additional revenue.

One option understood to be under discussion – reversing cuts to the bank surcharge made by Jeremy Hunt – would raise upwards of £2bn a year.

Industry figures believe that will probably mean raising the surcharge back to 8%, from 3% at present, to help bolster the government’s fiscal headroom (which has been eroded by the jump in borrowing costs this year).

News of the looming tax raid came hours after Healey praised the banks as crucial to supporting economic growth, telling reporters:

“People too often see them as big, distant financial institutions, when they are hardwired into the economic fabric of this country and our future prospects.”

Banks sound resigned to being shorn at the budget, but they’re not happy about it.

Banking sector trade body, UK Finance, warned that “further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode”.

Senior banking executives have told the BBC they expect the sector to be “on the menu” at the budget….

The agenda

• 10am BST: Eurozone trade and inflation data

• 1.30pm BST: NY Fed Services Activity Index