The error is due to that you're only allowed to use pipeline steps inside the steps directive. One workaround that I know is to use the script step and wrap arbitrary pipeline script inside of it and save the result in the environment variable so that it can be used later.
So in your case:
pipeline {
agent any
stages {
stage("foo") {
steps {
script {
env.FILENAME = readFile 'output.txt'
}
echo "${env.FILENAME}"
}
}
}
}