HSBC Lowers UK Growth Forecasts Amid Calls for Bank Windfall Tax

HSBC has lowered its forecast for UK economic growth, projecting 1.1 percent GDP expansion, down from a previous estimate of 1.4 percent. The bank attributes this downward revision to the dampening effects of elevated inflation and interest rates on consumer spending and the housing market.

This economic outlook was released as Chancellor John Healey faces renewed calls to introduce or increase a windfall tax on banks, following HSBC's report of a 32 percent jump in third-quarter pre-tax profits, reaching $9.6 billion. The bank also announced plans for a $1 billion share buyback.

Campaigners and trade unions argue that the bumper profits reported by banks in recent years, largely due to higher interest rates, demonstrate their capacity to contribute more to public funds. The Trade Union Congress (TUC) is specifically advocating for an increase in the bank surcharge to 16 percent, asserting that banks can "afford to contribute more" as working people face economic hardship.

Chancellor Healey is reportedly considering an increase in the bank surcharge from 3 percent to 8 percent. However, industry representatives have cautioned that such a move could negatively impact investment and economic growth, potentially leading to higher mortgage rates for consumers. UK Finance has warned that an increased bank tax would make the UK less competitive internationally, citing higher overall tax rates for UK banks compared to those in Frankfurt and New York.

Despite the potential for a higher levy, HSBC's finance chief, Pam Kaur, stated that the bank has no plans to relocate its headquarters from London. The bank's UK operations reported an 8 percent increase in profits for the first nine months of the year, contributing $5.2 billion to the overall group profit, which stood at $29.2 billion.

HSBC's group revenue rose by 5 percent to $18.6 billion, though this figure missed analyst expectations partly due to slower growth in its wealth management division. Revenue in this segment remained flat at $2.7 billion, a notable slowdown compared to the double-digit growth seen in the first two quarters of the year. This performance contributed to a 7 percent drop in HSBC's shares listed in Hong Kong.

Barclays also recently reported a 12 percent rise in pre-tax profits to £2.3 billion for the three months ending September 30, benefiting from trading volatility and higher interest rates. The bank also announced plans to cut 5,000 jobs by the end of the year, intending to replace staff with artificial intelligence.

The potential increase in the bank surcharge raises concerns about its impact on consumers. Trade bodies suggest that banks might pass on the increased tax burden through higher mortgage rates and less competitive loan offers. Savers could also be affected if banks reduce interest rates on savings accounts to offset the tax, leading to reduced real returns during periods of rising inflation. Additionally, shareholders might see reduced dividend payouts if banks choose to cover the tax bill through lower distributions.