London midday: Energy firms pace gains as Hunt scraps mini-budget

dl city of london view high overview gherkin st mary axe offices towers buildings skyscrapers square mile financial district trading finance unsplash — Sharecast / Laura Chouette via Unsplash

London stocks had extended gains by midday on Monday, while sterling rose and gilt yields fell as new Chancellor Jeremy Hunt put the final nail in the coffin of his predecessor’s so-called mini-budget.

The 100 was 0.6% firmer at 6,898.33, while the pound was up 0.9% against the dollar at 1.1270.

Hunt confirmed there would be no tax cuts at all and that the government’s energy price guarantee would end in the spring.

In a brief statement to reassure markets that Kwasi Kwarteng’s mini-budget was now consigned to the bin, Hunt said the plan to cut the basic rate of income tax to 19p would be scrapped. Overall, the removal of most of the mini-budget measures would raise the Treasury £32bn a year, Hunt said.

He also revealed that household support with energy bills will be scaled back.

Prime minister Liz 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.

Other measures to fall under the knife included cuts to dividend tax rates, a relaxation of tax rules for self-employed people, VAT-free shopping for tourists and alcohol duty changes.

Victoria Scholar, head of investment at Interactive Investor, said: "Jeremy Hunt’s focus on reassuring the markets and reinstating confidence appears to have worked so far with gilt yields trading lower and sterling pushing higher. The FTSE 100 is staging gains with utilities and housebuilders, the most budget-sensitive sectors outperforming as Trussonomics is unwound with the reversal of the biggest tax cuts in 50 years.

"Although we heard about Hunt’s tax plans, spending question marks remain until the medium-term fiscal plan is announced on 31st October when the Chancellor will outline how he plans to cut government spending in order to plug the multi-billion pound budget shortfall, raising concerns about the prospect of a new era of austerity."

Scholar said the retreat in gilt yields and sterling’s appreciation should help to settle the mortgage market and offset some of the UK’s imported inflationary pressures, possibly requiring less aggressive interest rate increases from the Bank of England at its next monetary policy committee meeting at the start of November.

Standard Chartered was a high riser after an upgrade to ‘overweight’ at Morgan Stanley.

ITV surged following a report that bosses at the broadcaster are seeking to cast its production business in a more prominent light amid frustrations with the group’s stock market valuation.

According to The Times, the company is 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.

On the downside, Hargreaves Lansdown slumped 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.

Market Movers

FTSE 100 (UKX) 6,898.33 0.58%
FTSE 250 (MCX) 17,205.86 1.02%
techMARK (TASX) 4,090.55 0.21%

FTSE 100 - Risers

United Utilities Group (UU.) 891.60p 4.35%
Severn Trent (SVT) 2,392.00p 4.05%
Barratt Developments (BDEV) 359.40p 3.57%
International Consolidated Airlines Group SA (CDI) (IAG) 113.24p 3.08%
Centrica (CNA) 73.72p 2.93%
Persimmon (PSN) 1,244.00p 2.73%
Taylor Wimpey (TW.) 90.28p 2.64%
Legal & General Group (LGEN) 224.20p 2.56%
National Grid (NG.) 893.40p 2.55%
Standard Chartered (STAN) 554.80p 2.44%