UK stocks hold gains after Hunt tax U-turn

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London shares held on to early gains on Monday as new finance minister Jeremy Hunt said the government would roll back almost all of the tax measures announced by Prime Minister Liz Truss’ economic growth plan three weeks ago to end to the bond market rout that hit the UK markets.

The blue-chip FTSE 100 index gained 0.5%, while the domestically focused FTSE 250 index rose 1.0%.

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Newly elected Chancellor Jeremy Hunt cut almost every part of Prime Minister Liz Truss’ mini-budget, saying reversing the proposed tax cuts would help the government raise around 32 billion pounds ($36.2 billion ) per year.

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The measures come two weeks ahead of schedule as Hunt seeks to appease investors spooked by the Truss government’s plans which have raised concerns about how tax cuts could be funded and have driven up the costs of tax sharply. loan.

On Friday, Truss rolled back some of the tax cuts and replaced Kwasi Kwarteng with Hunt. Meanwhile, the Bank of England (BoE) concluded its emergency bond purchases on Friday aimed at supporting the gilt market.

The pound gained 0.8% against the dollar and long-term UK government bond yields fell further after the announcement.

“Markets look set to give Jeremy Hunt the chance to backtrack,” said Danni Hewson, financial analyst at AJ Bell.

« The new chancellor has given the government some breathing room and this morning’s market reaction will have sent a clear message to both the Prime Minister and his critics that ‘Trusonomics’ should never have been seriously considered, at least not while the economy takes such a beating. »

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Traders also retreated slightly on expectations of a big BoE rate hike next month, now seeing a 68.2% chance of a 100 basis point hike at the central bank’s meeting on Tuesday. November 3.

« The new chancellor has essentially canceled most of the mini-budget, but there’s still a huge amount of borrowing left and this huge budget gap needs to be closed at some point, » said Stuart Cole, chief macroeconomist at Equiti Capital. .

Goldman Sachs downgraded Britain’s economic outlook, adding that it « now expects a deeper recession, » Bloomberg News reported on Sunday.

Among individual shares, Hargreaves Lansdown fell 6.9% after the investment platform announced CEO Chris Hill would step down, a day after the company was hit by a multi-million pound lawsuit. (Reporting by Sruthi Shankar, Bansari Mayur Kamdar and Anisha Sircar in Bengaluru; Editing by Subhranshu Sahu and Shinjini Ganguli)