Bank of England Supports Deficit Cut Plan

Arthi Gupta, Mayank Mehta and Sanjay Barot
12 May, 2010
New York City

U.K. stocks rise after Prime Minister David Cameron pledged to cut budget deficit as soon as possible. Unemployment rate in the first quarter to March was 8.0% and GDP increased by 0.2%. Towers Watson & Co. profit drops after merger.

[R]4:00 PM London, 11:00 AM New York – U.K. stocks rise after Prime Minister David Cameron pledged to cut budget deficit as soon as possible. Unemployment rate in the first quarter to March was 8.0% and GDP increased by 0.2%. Towers Watson & Co. profit drops after merger.[/R]

U.K. stocks advance after Prime Minister-designate David Cameron’s plans to cut the nation’s budget deficit.

David Cameron named Liberal Democrat leader Nick Clegg as Deputy Premier in Britain''s new government, first coalition government since 1945.

In a statement in the early hours of Wednesday, after his party had formally backed the coalition deal, Clegg acknowledged that running a coalition government was going to be a tough task. The coalition must cut a budget deficit running at more than 11% of GDP.

The Lib-Dems made sure the Tories relented on their rigid stance on parliamentary reforms, and extracting a commitment from the Conservatives for a referendum on voting reforms.

Chancellor of the Exchequer, George Osborne, will publish an emergency budget within 50 days containing 6 billion pounds measures to narrow the shortfall. That plan was part of the Conservatives’ deal with their Liberal Democrat partners that includes a levy on banks, a commission to investigate splitting retail banking from investment banking, plans to limit bonuses, and measures to increase lending to businesses, party officials said last night.

The Conservatives hold largest number of seats in the UK Parliament but fell 20 seats short of an outright majority.

Bank of England Governor Mervyn King said it is “imperative” that the U.K.’s deficit is dealt with sooner rather than later. Risks to the economic recovery have increased on investor concern about European sovereign debt, he said.

Gilts rose and the pound fell against the euro. The pound fell 0.1% to $1.4937 and was 0.2% weaker against the euro at 84.84 pence.

Sterling fell versus the dollar after the central bank said inflation is likely to be below its 2% target.

UK unemployment rate for three months to March was 8.0%, rose 2 percentage point from the previous quarter. The number of unemployed people increased 53,000 in the quarter to 2.51 million, the highest since three months to December 1994.

In the first quarter, GDP rose 0.2%. This was the second consecutive economic expansion since first quarter of 2008. First quarter 2010 unemployment rate stood 8.0% compared to previous quarters.

In London FTSE 100 Index closed higher 37.73 or 0.71% to 5,371.94 and the pound edged lower to close at $1.493 and to close at €1.177.

Gainers & Losers

Barratt Developments PLC, the home builder gained 5.4% to 122.80 pence.

Compass Group PLC rose 0.3% to 529.50 pence after the food services and contract catering company said first half revenues rose 3% to £7.1 billion from £6.9 billion a year ago. Net profit for the first half rose 17% to £333 million or 17.8 pence per diluted share compared to net profit of £284 million or 15.3 pence per share a year ago.

FirstGroup plc rose 0.5% to 372.00 pence after the bus and rail operator said 2009 revenues rose 2% to £6.32 billion from £6.19 billion a year ago. Net profit for the year fell 8% to £132.1 million or 27.3 pence per diluted share compared to net profit of £143.3 million or 30.0 pence per share a year ago.

Genus plc, the animal breeding firm fell 1.0% to 720.00 pence.

ITV plc gained 5.8% to 60.85 pence.

Kesa Electricals plc fell 0.2% to 114.30 pence. The company reported total group revenue increased by 1.1% in sterling and 1.0% in local currency. Group web generated sales increased by 23.8%.

Micro Focus International plc, the software group rose 0.9% to 513.00 pence.

Stobart Group Limited added 1.3% to 150.10 pence after the provider of multimodal transport and logistics solutions said 2009 revenues rose 4% to £447.7 million from £431.1 million a year ago. Net profit for the year was £28.2 million or 11.58 pence per diluted share compared to net loss of £8.8 million or 4.07 pence per share a year ago.

Towers Watson & Co fell 0.6% to 48.44 pence. The global professional services company said third quarter revenues rose 93% to $804 million from $417 million a year ago. Net profit for the quarter fell 78% to $8.8 million or $0.12 per diluted share compared to net profit of $40.6 million or $0.95 per share a year ago.

Tullow Oil plc added 2.5% to 1,116.00 pence.

Wellstream Holdings PLC fell 1.2% to 579.00 pence.

Wood Group (John) Plc, after the energy sector services firm added 2.3% to 368.10 pence.