Markets not much moved by Budget

LONDON FTSE 100 CLOSE 5,246.98 -52.13

LONDON'S benchmark FTSE-100 index remained in the red yesterday, despite a number of positive economic signs following Chancellor George Osborne's Budget announcement.

The pound rallied against the dollar and the euro, while ratings agency Fitch said the Budget's proposals materially strengthened confidence in the UK's finances as the country battles to avoid a costly downgrade to its cherished AAA rating.

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The main share index was hit by concerns over Europe's debt crisis and, after an uncertain opening on Wall Street, it closed some 52 points lower at just below 5,247.

Interest rates are expected to remain lower for longer due to the Budget, but this was offset by general approval of deficit-cutting measures.

The announcement of a 2 billion-plus tax on bank balance sheets was met with relief as there had been expectations of a more severe penalty.

Part government-funded bank Lloyds Banking Group was up 4 per cent, or 2.3p, to 59p and Royal Bank of Scotland lifted 0.3p to 47.1p – but those with more international operations suffered as it emerged France and Germany were also making joint statements on a similar balance sheet tax. Barclays fell 2 per cent, or 6.35p, to 310.75p.

The sector was earlier under pressure after a Fitch ratings downgrade on BNP Paribas revived worries that Europe's sovereign debt mountain will slow growth and undermine the financial system.

Retailers gained the most as a delay in a widely-forecast hike in value added tax to 20 per cent from 17.5 per cent until 4 January lifted expectations for bumper sales in the run-up to the change. Home Retail Group, Next and Marks & Spencer all rose between 1.3 and 1.6 per cent.

Supermarket chains Morrisons, Tesco and Sainsbury's added 0.4 to 2.6 per cent on relief that VAT would not be extended to food, as some had feared.

Meanwhile, BP slumped to a new low following the trend of its 50 per cent share price drop since the Deepwater Horizon explosion in April.

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The stock hit its lowest point since 1997 after Goldman Sachs slashed its rating on the oil giant, which finished the session 15.3p lower at 334.2p.

Other commodity stocks were also under pressure. Edinburgh-based Cairn Energy dropped 11.9p to 433p and BG Group fell 41p to 1,084p after Goldman also downgraded the explorer and noted the potential for delays in key projects.

One of the biggest moves of the session came from leisure group Whitbread after it reported a strong performance from its Premier Inn hotels chain. Premier's like-for-like sales jumped 10.5 per cent in the first quarter as the division benefited from increased marketing and the roll-out of value-for-money offers. Whitbread shares closed 53p higher at 1,531p.

Outside the top flight, military supplies firm Chemring dropped 6 per cent after its half-year earnings report disappointed analysts. It saw a 7 per cent rise in profits to 42.3 million and a 25 per cent improvement in its order book to 751m, but investors were disappointed by the absence of any other positive surprises. Shares ended 199p lower at 3,111p.