HSBC slashes UK growth forecasts on eve of Budget as bumper profits spark fresh calls for windfall tax

HSBC has cut its UK growth forecasts ahead of John Healey's first Budget, warning the outlook for the economy had 'deteriorated'. HSBC cut its GDP growth estimates from 1.4 per cent to 1.1 per cent, as higher inflation and interest rates dampen consumer spending and the housing market. 'In the UK, the outlook has deteriorated and GDP growth forecasts are lower,' the bank said. It came as the Chancellor was urged to press ahead with a windfall tax on banks after the bank posted another surge in quarterly profits. The FTSE 100 lender reported pre-tax profits jumped 32 per cent to $9.6billion in the third quarter, with plans to return more cash to investors through a $ 1 billion buyback.Campaigners and trade unions have urged the Chancellor to target banks after they reported bumper profits in recent years due to elevated interest rates, with Healey expected to increase the bank surcharge from 3 per cent to 8 per cent. But bank bosses have warned it will hit investment and growth, pushing up mortgage rates in the process. The Chancellor is expected to raise the surcharge on bank profits despite industry please HSBC is not expected to be hit as hard by a higher bank levy as other lenders, such as Lloyds and Natwest, because it makes most of its money outside of the UK.Profits in the UK bank rose to $1.8 billion in the third quarter, bringing total profits in the first nine months of the year to $5.2 billion, up 8 per cent on the same period in 2025. The UK arm, which focuses on savings, loans and wealth management, accounts for around a fifth of Asia-focused HSBC’s total profit of $29.2bn this year.Paul Nowak, general secretary of the Trade Union Congress (TUC), said: ‘Some in the finance lobby have tried every which way to stop tax rises in the Budget. But these results make it blatantly obvious banks can afford to contribute more.‘It's not just HSBC. Barclays announced bumper profits last week too. And Britain's big four banks have made more than £200bn in profit over the last five years.‘With Trump and Putin's illegal wars rumbling on, working people have another cold, hard winter ahead. Households and businesses are going to need more support - and it's time for the Chancellor to make the banks pay a fairer share.’The TUC is calling for the government to raise the surcharge to 16 per cent. HSBC finance chief Pam Kaur dismissed suggestions that the bank may move its headquarters from London because of the bank tax threat: ‘That’s just not on the table,’ she told reporters. UK Finance has warned that a fresh tax raid will make the UK even more of an international outlier, pointing out that UK banks are currently taxed at a rate of 46.5 per cent once employment levies and VAT are taken into account. That compares with 39.1 per cent in Frankfurt and 27.9 per cent in New York. Banks’ profits have been boosted in recent years because of higher-for-longer interest rates, which have widened the gap between what they pay savers on deposits and charge borrowers for lending.This gap – net interest income – is a key measure of profitability for lenders. For HSBC UK, it rose 6 per cent year-on-year to $3.2billion in the third quarter and to $9.3billion for the overall bank, as the fallout from the Middle East war pushed interest rate expectations higher.‘Our performance shows that in a more complex world clients continue to turn to us to navigate uncertainty and seize new opportunities,’ said chief executive Georges Elhedery.Europe’s biggest bank reported a 5 per cent increase in group revenue to $18.6billion, missing analyst estimates in part due to slower growth at its wealth business. HSBC shares fell in Hong Kong after a disappointing performance in its wealth divisionRevenue for HSBC's wealth division was flat at $2.7billion. That compared with 15 per cent and 23 per cent year-on-year revenue growth in the first two quarters, dragging HSBC’s London-listed shares down 7 per cent.Duncan Ferris, Analyst, Freetrade, said: ‘The tease of shareholder returns may act as a tonic to a potential wrinkle in the policy environment. Like other British banks, HSBC may be in store for an increased surcharge on profits in this week’s Budget.He added: ‘If Chancellor John Healey does confirm the much-rumoured measure on Wednesday, the increased tax burden could increase the rarity of shareholder windfalls from the likes of HSBC.‘However, as the rumoured surcharge reportedly applies to UK profits, HSBC may be more insulated than most competitors given its extensive Asian business.’Last week, Barclays reported a 12 per cent rise in pre-tax profits to £2.3billion for the three months to September 30 as it was boosted by trading volatility and higher interest rates.The lender also revealed plans to cut 5,000 jobs by the end of this year as it pushes to replace staff with artificial intelligence.How could a higher bank tax affect customers?Healey declared banks a 'jewel in the crown of the British economy' and now he's looking to tap them for additional revenue.Targeting the financial sector with higher levies comes with trade-offs, with concerns over the UK's competitiveness and its knock-on impact on economic growth.Any increase to the banking surcharge could be passed on to consumers through higher mortgage rates and other loans, trade body UK Finance warned last month.To protect their profit margins, domestic banks could raise their mortgage prices or offer less competitive rates on new deals.A higher surcharge may limit flexibility and therefore lead to tighter lending criteria, making it more difficult for prospective buyers to secure a mortgage approval.Savers could also be punished. Lenders may cut interest rates on savings accounts to try to recoup the lost revenue caused by higher taxes. Lower rates while inflation is rising means reduced real returns for savers.Meanwhile, those who rely on dividend income from UK banks may also take a hit after the Budget if banks reduce shareholder payouts to cover the tax bill.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you