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FTSE 100 down 0.4%, FTSE 250 sheds 0.6%

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Banking stocks fall on tax concerns

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Defence stocks gain as Russia-Ukraine meeting unlikely

By Twesha Dikshit

Aug 29 (Reuters) - London equities edged lower on

Friday, dragged down by heavyweight banking stocks after an

independent think tank recommended taxing interest they receive

from reserves held at the central bank.

The blue-chip FTSE 100 fell 0.4% by 0909 GMT,

declining for a fourth consecutive day and was set for its

biggest weekly loss in almost five months.

The Institute for Public Policy Research said taxes on the

billions of pounds received by banks in interest would give

finance minister Rachel Reeves more room to meet her fiscal

rules.

"Reeves has a potentially very large black hole to fill as

far as public finances are concerned as we move towards the

autumn budget," said Fiona Cincotta, senior market analyst at

City Index.

"It's not something that is conducive to a strong business

environment in the UK, but I can see how it may be an attractive

option for the Chancellor given her predicament and limited

options."

Banking stocks, down 2.4%, were the biggest

drag on the blue-chip index. NatWest ( NWG ) and Lloyds

fell 4.5% each while Barclays ( BCS ) lost 3.7%.

Providing support, defence stocks rose after

German Chancellor Friedrich Merz said it seemed clear that there

would be no meeting between Russia and Ukraine's leaders.

Rolls-Royce and Babcock added 1.6% and 1.3%,

respectively.

The domestically-focussed midcap index was down 0.6%

and set for its first monthly loss in five months.

Luxury fashion group Burberry ( BBRYF ) fell 2.2% on the

midcap index and weighed on the personal goods index. Watches of

Switzerland ( WOSGF ) was down 1.9%.

The FTSE 100 had touched a record high last week, tracking

global markets after U.S. Federal Reserve Chair Jerome Powell

signalled a possible interest rate cut at the central bank's

September meeting.

However, concerns over the Fed's independence have pressured

markets this week. Investors will track a key U.S. inflation

data report and euro zone data later in the day for monetary

policy outlook hints on both sides of the Atlantic.

(Reporting by Twesha Dikshit; Editing by Mrigank Dhaniwala)