London close: Stocks shrug off windfall tax to finish firmer

The FTSE 100 ended the session up 0.56% at 7,564.92, and the FTSE 250 added 1.58% to 20,248.74.

Sterling was in a mixed state, meanwhile, and was last treading water against the dollar at $1.2574, while it weakened 0.38% on the euro to change hands at €1.1731.

“European markets have spent most of the day edging cautiously higher, with the FTSE 100 shrugging off the UK government’s decision to impose a 25% windfall tax on the oil and gas sector,” said CMC Markets chief market analyst Michael Hewson.

“In yet another government u-turn, Chancellor Rishi Sunak announced a £5bn tax raid on the oil and gas sector in the form of an energy profits levy, which is just another name for a windfall tax.

“While it’s not good news for shareholders, it’s still removed the uncertainty around whether one would be imposed, with BP, Shell, and Harbour Energy shrugging it off.”

Hewson said it was not such good news for the likes of SSE and Centrica, with the Chancellor saying he would be looking to claw back some of their profits later in the year, when more measures could be needed.

“On the plus side there is a sunset clause of December 2025.”

Indeed, the Chancellor of the Exchequer announced a £15bn package of measures intended to help households with the soaring cost of living during the afternoon, including a windfall tax on energy companies.

Addressing the House of Commons, Rishi Sunak said high inflation was causing "acute distress" for people, adding: "We need to make sure that for those whom the struggle is too hard, and for whom the risks are too great, this government will not sit idly by."

Sunak previously opposed calls for a windfall tax, arguing that it would deter investment in green technology and infrastructure.

But he acknowledged on Thursday that the energy sector was making "extraordinary profits" because of surging commodity prices alone, which should be taxed "fairly".

The Treasury was thus introducing a "temporary targeted energy profits levy" set at 25%, which Sunak said was expected to raise around £5bn over the next year.

It would be phased out when prices return to normal levels, he added, though did not provide further details on timing.

A sunset clause for December 2025 was expected to be written into the relevant legislation, and companies that continued to invest would get tax relief of 90% of their investments.

Sunak previously announced measures to help with the cost of living crisis in his Spring Statement, but was criticised for not going far enough.

Households were promised a £200 reduction on energy bills, but in the form of a loan that had to be repaid to the energy companies.

The loan would now become a grant, and will be doubled to £400, Sunak told politicians.

Other measures announced on Thursday included an extra £300 for around eight million pensioners who receive winter fuel payments in the autumn, and a one-off disability cost of living payment of £150 from September.

Around eight million of the lowest income households on means-tested benefits, meanwhile, would receive £650 in two instalments.

In economic news from across the pond, US initial jobless claims fell by a better-than-expected 8,000 in the week ended 21 May, dropping from an unrevised print of 218,000 to 210,000, according to the Labor Department.

On a non-seasonally adjusted basis, initial claims fell by 14,534 week-on-week to 183,927, with notable declines in California, Illinois, Kentucky, and New York.

The four-week moving average, which aims to strip out week-to-week volatility, came to 206,750, an increase of 7,250 from the previous week's unrevised average of 199,500, while continued claims for regular benefits rose 31,000 to 1.34m, maintaining their downtrend near the lowest level in over 50 years and remaining firmly below the 1.7m average in 2019.

Staying stateside, revised data showed the US economy shrinking at a slightly quicker pace than previously thought, although the underlying levels of activity and prices came in a tad better than expected.

According to the Department of Commerce, gross domestic product shrank at a quarterly annualised pace of 1.5%.

That was one-tenth of a percentage point less than the preliminary estimate and two-tenths lower than expected by the consensus.

On London’s equity markets, Intermediate Capital Group jumped 7.11% after it reported that total full-year assets under management were ahead 26% in what it called a "defining" year.

Auto Trader rose 2.79% after the car sales platform said it had almost doubled annual profits as more customers spent online making purchases.

Ocado Group rocketed 11.9%, having tumbled on Wednesday after Ocado Retail - its 50-50 joint venture with Marks and Spencer - cut its annual sales target.

Government outsourcer Serco Group surged 9.82% after it lifted its full-year guidance following better-than-expected trading in the first four months of the year.

FirstGroup rallied 7.91% after the passenger transport operator said it was mulling a takeover offer from private equity firm I Square, which owns Irish energy supplier Energia.

JD Sports Fashion reversed earlier losses to close up 6.43%, having tumbled into the close on Wednesday after it took the market by surprise and announced the departure of executive Peter Cowgill.

Investment platform AJ Bell was also in the back, rising 7.92% after it reported a drop in interim pre-tax profit as dealing activity normalised, but lifted its margin guidance for the year.

On the downside, BT Group slumped 2.37% after it emerged the government will examine French billionaire Patrick Drahi's 18% stake in the telecoms company amid concerns about national security.

SSE slid 4.87% after the Chancellor announced the windfall tax on energy firms, a day after the company reported adjusted pre-tax profits of £1.16bn.

Power-generating peers Centrica and Drax Group were also weaker on news of the windfall tax, falling 7.24% and 4.53%, respectively.

United Utilities fell 4.13% after it posted a drop in full-year underlying pre-tax profit and pledged not to increase average household bills for 2022-2023, despite rapidly rising inflation.

Transact owner IntegraFin Holdings tumbled 17.57%, with analysts pointing to a downbeat outlook in the company’s first-half results.

Petrofac gushed 2.65% lower after a disappointing update, in which it said it was experiencing near-term headwinds on some engineering, procurement and construction contracts.

Johnson Matthey lost 2.42% after saying it expected its full-year operating performance to be in the lower half of the consensus range.

Elsewhere, Imperial Brands was down 0.47%, Intertek lost 0.16% and RHI Magnesita was in the red by 0.66%, as they all traded without entitlement to the dividend.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Abigail Townsend, Iain Gilbert and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,564.92 0.56%
FTSE 250 (MCX) 20,248.74 1.58%
techMARK (TASX) 4,424.31 0.64%

FTSE 100 - Risers

Ocado Group (OCDO) 861.20p 11.54%
Intermediate Capital Group (ICP) 1,569.50p 7.61%
B&M European Value Retail S.A. (DI) (BME) 456.10p 7.27%
Next (NXT) 6,522.00p 6.43%
JD Sports Fashion (JD.) 119.30p 6.38%
Scottish Mortgage Inv Trust (SMT) 745.80p 5.46%
Melrose Industries (MRO) 126.15p 5.04%
Burberry Group (BRBY) 1,641.00p 4.59%
Associated British Foods (ABF) 1,723.50p 4.42%
Royal Mail (RMG) 327.30p 4.34%

FTSE 100 - Fallers

United Utilities Group (UU.) 1,039.00p -6.61%
SSE (SSE) 1,776.00p -4.61%
Severn Trent (SVT) 2,941.00p -4.23%
National Grid (NG.) 1,186.50p -3.30%
Imperial Brands (IMB) 1,787.50p -2.93%
BT Group (BT.A) 185.50p -2.29%
Intertek Group (ITRK) 4,594.00p -1.88%
DCC (CDI) (DCC) 5,606.00p -1.82%
GSK (GSK) 1,753.80p -1.19%
Sage Group (SGE) 661.00p -0.75%

FTSE 250 - Risers

Serco Group (SRP) 167.70p 9.75%
Aston Martin Lagonda Global Holdings (AML) 678.00p 9.67%
Carnival (CCL) 965.60p 9.18%
FirstGroup (FGP) 129.80p 8.71%
Auction Technology Group (ATG) 1,054.00p 8.31%
Baltic Classifieds Group (BCG) 144.40p 8.25%
AJ Bell (AJB) 275.40p 7.92%
Marks & Spencer Group (MKS) 149.60p 7.90%
Currys (CURY) 86.85p 7.40%
Baillie Gifford US Growth Trust (USA) 158.80p 6.72%

FTSE 250 - Fallers

IntegraFin Holding (IHP) 284.20p -18.66%
Centrica (CNA) 79.20p -7.24%
Drax Group (DRX) 685.50p -4.53%
Johnson Matthey (JMAT) 2,266.00p -3.62%
Pennon Group (PNN) 1,032.00p -3.19%
Petrofac Ltd. (PFC) 150.40p -2.65%
Centamin (DI) (CEY) 83.72p -2.40%
Polymetal International (POLY) 230.00p -2.13%
Hilton Food Group (HFG) 1,132.00p -2.08%
Vivo Energy (VVO) 139.60p -1.96%