Europe midday: Shares rally as Hunt rips up Truss tax-cut plan

European shares rose sharply by midday on Monday after new British Finance Minister Jeremy Hunt consigned the government's tax cutting plan to the bin, calming bond markets and boosting the pound.

The pan-European Stoxx 600 index was up 0.78%, while Britain's FTSE 100 index was up 0.66%. The pound was up 1% against the dollar at $1.12 and 0.77% higher versus the euro at $1.15.

Meanwhile UK government 10-year bond yields fell below 4%.

Hunt, Britain’s fourth finance minister in four months, decided to bring forward elements of his statement after weekend talks with Prime Minister Lizz Truss and Bank of England Governor Andrew Bailey. He confirmed the reversal of cuts to income tax and, surprisingly revealed that household support with energy bills will be scaled back.

Truss announced in September that household energy bills would be capped at £2,500 for the next two years. She said at the time that the energy price cap would be fixed at £2,500 from 1 October, saving the average household around £1,000 a year. The move was in addition to the previously announced £400 energy bill discount.

Typical household gas and electricity bills had been set to rise from £1,971 to more than £3,500 on 1 October, with the potential to reach £6,000 in January 2023, when the next price cap review was due.

However, Hunt said on Monday that the energy price cap guarantee would now last only until April, after which time it will be reviewed, sending shares in energy firms higher. British Gas owner Centrica, United Utilities, Severn Trent and National Grid all gained.

He also sparked fears of a return to the grind of austerity first enthusiastically championed by former finance minister George Osborne after the banking industry caused the 2008 financial crash. Hunt warned of spending cuts and tax rises, a complete reversal of Truss’s disastrous plan to produce £45bn in unfunded tax cuts which led to the sacking of his predecessor Kwasi Kwarteng.

“Out of the gates, UK gilt yields are trading mostly lower as bond prices push higher, suggesting that the sacking of Kwasi Kwarteng and the appointment of Jeremy Hunt have helped to stabilise the market to some extent, reinstating some confidence in the UK government borrowing market,” said Victoria Scholar at Interactive Investor.

“The Bank of England this morning also helped to reassure markets with a soothing statement on the end of its gilt market operations, suggesting that some support remains with the availability of its Temporary Expanded Collateral Repo Facility (TECRF) which is available until 10th November.”

In equity news, shares in UK broadcaster ITV gained after a report that management is trying to cast its production business in a more prominent light amid frustrations with the group’s stock market valuation. The company is reportedly reviewing the future of ITV Studios, its production arm, including the option of selling a stake, in an attempt to boost its lagging share price.

Hargreaves Lansdown was in the red after it reported a drop in first-quarter assets under administration and announced the departure of chief executive Chris Hill, amid reports the company has been hit by a lawsuit over the failure of Neil Woodford's equity income fund.

Reporting by Frank Prenesti for Sharecast.com