UK markets tick higher as Truss U-turns on tax plan, shuffles finance minister

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Britain’s main stock indexes hit session highs before paring gains on Friday after Prime Minister Liz Truss signalled a U-turn in part of the new government’s large unfunded tax cut plan that roiled financial markets in the recent weeks.

“It is clear that parts of our mini-budget went further and faster than markets were expecting,” Truss told a news conference after firing her finance minister Kwasi Kwarteng and replacing him with former foreign minister Jeremy Hunt.

Truss said Britain’s corporation tax will rise to 25% after Kwarteng, in a “mini-budget” last month aimed at spurring economic growth, had said corporation tax would be frozen at 19%.

The blue-chip FTSE 100 added 0.1%, while the domestically focussed FTSE 250 advanced 0.6%.

“The writing was on the wall when markets surged in anticipatory delight on the news that another post-budget U-turn was imminent and moves on corporation tax have gone a long way to bolstering sentiment today,” said Danni Hewson, AJ Bell financial analyst.

“But it’s a sticking plaster that’s already curling at the edges.”

Both indexes recorded their fourth weekly decline in five after erasing some of their sharp gains following Truss’ announcement.

The Bank of England’s emergency bond purchases – to protect pension funds caught up in the market chaos sparked by Kwarteng’s tax cuts announced last month – are due to end on Friday.

The pound fell against the dollar, trading down 1%, while two-year gilt prices, which turned lower before Truss spoke, dropped further in late trade.

Rate-sensitive real estate and housing stocks, hammered in recent weeks on the back of surging borrowing costs, gained 2.3% and 1.2%, respectively.

Capping gains on the commodity-heavy FTSE 100, energy and mining stocks fell 1.2% and 1.7%, on crude and metal prices.

Among single stocks, International Distributions Services fell 10.5% after it said that unit Royal Mail could cut as many as 5 000 to 6 000 jobs by the end of August next year.

Amigo Holdings Plc surged 44% after the sub-prime lender said it has received approval from Britain’s financial regulator to return to lending under certain conditions.