By Sohaib Shams
London's FTSE 100 closed slightly higher on Wednesday as investors digested Chancellor John Healey's first Budget and awaited the US Federal Reserve's interest rate decision.
The FTSE 100 rose 7.96 points, or 0.1%, to 10,694.50, while the mid-cap FTSE 250 fell 0.3% and the AIM all-share edged up 0.3%.
Budget Details and Market Reaction
Healey, delivering a Budget he described as "for the working people of Britain" and built on "fiscal discipline," announced higher taxes on bank and betting company profits to help fund energy bill support. The banking surcharge will rise to 6% from 3% for 15 months, below fears of a return to 8%.
The Office for Budget Responsibility upgraded 2026 growth to 1.2% but cut 2027 forecast to 1% from 1.5%. Inflation is seen at 3.1% in 2026 and 3.4% in 2027 before returning to 2% in 2028. Fiscal headroom against the Budget rule stands at about £15 billion in 2029-30.
Analyst Views
Fidelity International's Tom Stevenson said the Budget offered stability with few surprises. Peel Hunt's Kallum Pickering called it "mostly inconsequential" and one markets can "tolerate," noting that despite Prime Minister Andy Burnham's rhetoric about not being in hock to bond markets, the Budget was designed with markets in mind. Deutsche Bank's Sanjay Raja said Healey met his "do no harm" objective. ING noted the deficit stays on a downward path but long-term challenges remain unfunded.
Bond and Currency Markets
UK 10-year gilt yields dipped to 5.33% from 5.34%. Sterling was little changed at $1.3310 and €1.1941. XTB's Kathleen Brooks gave the bond market a "decent B+" rating.
Sector Movers
Banks rose despite the surcharge increase: Lloyds up 1.7%, Barclays 1.6%, NatWest 2.0%, Standard Chartered 2.4%. Gambling stocks Entain and Rank gained 3.6% and 12% after machine gaming duty rose to 25% from 20%, below feared 40%. Housebuilders fell sharply: Barratt Redrow down 6.6%, Taylor Wimpey 7.3%, Persimmon 6.9% on concerns over first-time buyer scheme funding.
Outlook: Fed and ECB Meetings
Attention now turns to the Federal Reserve, where rates are expected to hold despite inflation above the 2% target. The CME FedWatch Tool suggests possible tightening before year-end and further hikes in early 2027. The European Central Bank meets Thursday and the Bank of Japan Friday, both expected to stand pat.
In corporate news, GSK dropped 4.8% after vaccine division missed estimates. Hunting plunged 9.5% after cutting full-year EBITDA guidance for the second time, citing Middle East conflict. Brent crude rose to $116.37 a barrel; gold fell to $4,039.18 an ounce.
Thursday's calendar includes earnings from Shell and Lloyds, plus eurozone rate decision, UK mortgage approvals, US PCE and jobless claims.
