The UK's new budget is about to be announced: With a fundraising target of 300 billion, the banking and real estate industries are expected to become targets for tax increases.

Notice that British stock investors are on high alert, preparing to welcome one of the country's most anticipated budgets in years. Chancellor Rishi Sunak is seeking to raise around 300 billion ($390 billion) to plug the public finance hole and reshape fiscal credibility. Ahead of the budget announcement, the government has faced multiple policy U-turns and political crises. Sunak has notably abandoned plans to raise income tax, causing concerns among businesses about potential piecemeal tax hikes. Industries that may be hit hardest in Wednesday's budget include banking, residential construction, retail, and commercial real estate. Barclays analyst Paul May pointed out that the market generally doubts Sunak's ability to achieve a balance between income and expenditure, which has raised the risk premium that investors demand from UK assets. "It's difficult to feel confident about stock returns in an uncertain operating environment." When assessing the budget, investors not only need to weigh measures specific to certain industries but also consider policies that could affect consumer sentiment as a whole, such as any expansion of the range of frozen income tax thresholds. Here are the key points to watch for on budget day: Stocks sensitive to interest rates and exchange rates The bond market historically reacts swiftly and dramatically to budget announcements (former Prime Minister Liz Truss can attest to this), setting the tone for the market. Rising yields will reduce the relative attractiveness of stocks, and vice versa. Yields have a more direct impact on specific industries such as banks, insurance, residential construction, and commercial real estate. City Index senior analyst Fiona Cincotta says, "Any signs of the market not buying into Sunak's plans could push up bond yields, which would be bad news for the market, especially for the domestically-focused FTSE 250 index." Conversely, falling yields will be beneficial for "bond proxies" stocks commonly sought after for their dividends, including utilities. Cincotta added that a weak pound in skeptical forex markets could benefit the more international components of the FTSE 100 index (mostly multinational companies). Approximately three-quarters of the FTSE 100 index's profits come from overseas. A weak pound will have little effect on the UK retail sector, as they often purchase goods in foreign currency and sell in pounds. Banking The UK banking sector is expected to achieve approximately 8 billion in pretax profits for the 2026-27 fiscal year, making it a potential target in the budget. The most likely to be affected by tax increases are National Westminster Bank, followed by Lloyds Banking Group. Barclays, with most of its business in the US, and HSBC with significant risk exposure in Asia, might also face tax impacts. Will higher profits make banks a target? KBW analyst Edward Firth believes that tax increases "will give banks the perfect alibi not to lend to the wider economy as the government requires." The industry could also be negatively impacted by a hike in consumer tax rates, which may decrease lending and consumption. Real Estate Barclays' May pointed out that real estate is an economic barometer, requiring strong economy and consistent policies to perform well. May said that the real estate sector, which feels the budget is constantly changing without addressing fundamental economic issues, will seek clarity. Areas of focus will include commercial real estate companies involved in office buildings (such as British Land, Derwent London, and Dextrose Tree Property), as well as retail groups (such as Hammerson and Land Securities). Owners of storage facilities like Segro and Tritax Big Box will also be closely watched. In the previous budget, self-storage companies like Safestore Holdings were hit hard by increases in national insurance and minimum wage. Possible measures the Treasury may consider include implementing new taxes on housing sales, adjusting primary residence capital gains tax relief, and the so-called "mansion tax." House Building RBC Capital Markets analyst Anthony Codling said, "The budget is unlikely to be favorable for the housing sector, as the government needs to raise funds, and wealthier homeowners and landlords could be seen as easy targets." He added that the measures may not be as severe as some fear, as any action to slow down the market would hamper the government's house-building ambitions. If the general public's actual income is not negatively affected by the budget, this sector may see a rebound. Vistry, Bellway, Barratt Redrow, Persimmon, Taylor Wimpey, Berkeley Group, Crest Nicholson, and MJ Gleeson will be closely watched. Codling believes Berkeley Group is most vulnerable to tax increases, as it has a significant exposure to buyers in London, Southeast England, and overseas. Retail and Hospitality Industry BI analyst Celine Buzzy pointed out that retailers, food and beverage companies, and leisure operators may face higher labor costs and other taxes. Increasing business tax rates may impact supermarkets like Tesco and Sainsbury, while raising the minimum wage (especially for young people) will affect the entire retail industry. Consumer-facing industries are also highly vulnerable to measures that could further suppress confidence and willingness to consume, such as high income tax rates or frozen thresholds. Peel Hunt analyst John Stevenson stated, "Any direct tax increases will undoubtedly suppress sector share prices, as will all consumer-facing industries." Shore Capital analyst Clive Black accordingly stated, "If income tax doesn't rise in the short term, it will bring relief." Peel Hunt analyst Douglas Jack pointed out that restaurants will be most affected by increased labor costs (due to their high labor costs), followed by pubs, bowling alleys, and gyms. Gambling Industry MPs are scrutinizing the taxation of the gambling industry. Peel Hunt analyst Eve Jones stated that there are many options, including adjusting betting, online casino, and gambling machine tax rates, and believes there is a real downside risk in the budget. Focus will be on companies such as Entain, Flutter, Rank Group, Evoke, and software providers for gambling machines like Playtech and Swedish Evolution. Analysts suggest that an increase in gambling machine tax rates could also weigh on pub stocks. Outsourcing Services Changes in government spending could affect the outsourcing of public sector services, involving companies like Capita, Mitie, and Serco. However, industry experts expect Sunak to be more likely to increase taxes rather than cut spending to raise funds. Joe Brent, managing director of Panmure Liberum, said, "I observe their actions rather than their words. Although some Labour Party members oppose outsourcing, the current government has increased the proportion of private outsourcing. Refugee shelter is a great example outsourcing is politically unpopular, but the government has no choice." Wealth Management Industry Before the budget, Sunak faced opposition from major investment platforms in reforming individual savings account schemes. The Treasury aims to revive the London stock market and stimulate the economy, requiring retail investment firms to consider introducing a prefabricated ISA (with a minimum allocation of around 20% in UK stocks). Reports suggest mixed reactions, with the annual cash ISA tax-free allowance potentially decreasing from 20,000 to 12,000. If such proposals are included in the budget, institutions aimed at retail investors like St. James's Place, Hargreaves Lansdown, AJ Bell, Interactive Investor, and Quilter may see increased activity.