UK Stocks, Pound Fall; Budget 2009

123jump.com Staff
22 Apr, 2009
New York City

UK in Budget 2009 proposed to increase tax for the upper income earners, sharply increase the borrowings and increase public spending to support housing markets and banks. The pound, stocks and bonds fell after the government plans to sell

[R]1:00PM New York, 6:00PM London – UK in Budget 2009 proposed to increase tax for the upper income earners, sharply increase the borrowings and increase public spending to support housing markets and banks. The pound, stocks and bonds fell after the government plans to sell £220 billion of bonds this year.[/R]

U.K. stocks gained 1.1% after a report showed that the mortgage market may be in the early stages of stabilization. Stocks, pound and British bonds fell after the Debt Management Office said that it will sell £220 billion in bonds this year.

The Revenue & Customs noted 60,000 homes worth at least £40,000 each were sold in March compared with 43,000 flats and houses that were sold in February.

In London trading FTSE 100 index increased 1.1% or 43.2 to 4,030.66. The pound dropped 2% to $1.4489 and yields on 10-year bonds rose 12 basis points.

Of the FTSE 100 index stocks, 66 gained, 33 declined, and 3 were unchanged. Hammerson led advancers in the index shares with an increase of 11.3% on news the mortgage market is stabilising.

Financial stocks gained. Standard Chartered gained 4.6%, HSBC increased 4.3% and Royal Bank of Scotland edged up 3.9%.

U.K. Budget 2009 Highlights

U.K. Chancellor of the Exchequer Alistair Darling announced in his Budget 2009 estimated economy to shrink 3.5% this year before rebounding in 2010 with projected growth of 1.25%. The current focus of the budget strategy is to tax the rich, increase public spending to support housing and mortgage markets through borrowed funds.

The exchequer Darling introduced higher taxes for rich, additional incentives for people to trade their old automobiles and sharply higher borrowing. Fiscal deficit in the current year will surge to 12.4% and may increase if the government continues to spend if economy weakens further.

Through the budget, the government will broaden support for households and businesses through enhanced loss relief for an additional year.

Capital allowances for new investments will be increased to 40% for one year, and a £750 million Strategic Investment Fund to support advanced industrial projects of strategic importance will be established.

The annual investment limit for individual savings accounts will be increased to £10,200, up from £5,100, while there will be a £600 million funding of measures to build more homes through the use of dormant sites, and an extension of the stamp duty holiday for all houses costing up to £175,000 until the end of the year.

Darling also announced an additional rate of income tax of 50% for on income over £150,000, and noted the income tax personal allowance will be restricted for those with income over £100,000.

Tax relief on pension contributions will be restricted for those with incomes of £150,000 and over, and tapered down until it is 20%, while fuel duty will increase by 2 pence per liter effective September 1.

The budget says the interventions will lead to an average reduction in the current budget of over 0.8% a year from fiscal year ending in 2011 to the year ending in 2014.

In addition, the Treasury will borrow £269 billion more in the next five years, while the deficit will soar to £703 billion during five fiscal years through April 2014 from £434 billion projected in November.

Mortgage Lending Falls 52% in March

U.K. Council of Mortgage Lenders reported today gross mortgage lending increased 16% from a month ago but fell 52% from a year earlier to £11.5 billion in March.

Gross lending in the three months to March declined 29% from the previous quarter to £33 billion.

The CML director general, Michael Coogan said, ""While the market is beginning to show some signs of stabilising, housing transactions and lending are set to remain low for the foreseeable future.""

Gainers & Losers

Hammerson led advancers in the FTSE 100 index shares with a rise of 11.3% followed by increases in Barclays of 9.6%, in British Land Co. of 9.5%, in Rio Tinto of 7.7%, and Kingfisher of 7.4%.

Centrica Plc led decliners in the FTSE 100 index shares with a fall of 4.5% followed by losses in Friends Provident of 4.4%, in Reed Elsevier of 4.1%, Cadbury of 3.5%, and GlaxoSmithKline of 3%.