Britain's top share index rose early today, recovering some of the previous session's losses as investors bought in on the dips in miners and banks ahead of the UK budget announcement due later in the day.
London's blue-chip index was up 19.68 points, or 0.3 per cent, at 5,911.09, by 8.53am, having shed 1.2 per cent yesterday as investors were spooked by comments from BHP Billiton over slowing demand from China, which had been bubbling under the surface since the weekend.
The main focus for UK investors today will be the UK budget speech from finance minister George Osborne.
Mr Osborne is expected to cut the headline rate of income tax for high earners to 45 per cent in 2013 and hopes to further reduce it to 40 per cent – Britain’s top rate before the financial crash ripped a hole in the public finances – before the planned 2015 election.
Mr Osborne hopes the move will help attract investors to Britain and believes the sum raised by the top rate is relatively small in any case. Instead, he will try to raise more taxes from the wealthy overall by closing loopholes and avoidance schemes.
Mr Osborne’s financial package is expected to be fiscally neutral and will stick to the path of retrenchment set out after the 2010 election. With hopes rising that Britain will avoid a double-dip recession, both coalition parties are wedded to a programme of cuts and tax rises.
"Investors should avoid knee-jerk reactions and continue to do their homework on what is happening for individual firms and their commercial markets and sectors rather than worry too much about George Osborne," said Sarah Modlock, equities specialist at Interactive Investor.
"The only exception to this could be a surprise announcement on fuel duty or VAT which would signal some relief for businesses and customers and could have a positive effect on investor sentiment.”
The main gainers on the index were the previous session's sharpest fallers, the heavyweight banks and the miners, as investors took the opportunity to pick up cheaper stock.
"We're seeing an early rally but doubts over Chinese demand and the high oil price impacting inflation could hamper momentum," a London-based trader said.
Insurers bounced too with Prudential up 1.2 per cent as Deutsche Bank, Barclays and Panmure Gordon all raised their share price target.
"Although the shares have had a strong run recently, in our view the share price still does not fully capture the inherently higher growth rate (10 per cent-plus pa) that Prudential can command," Deutsche Bank said, lifting its price target by 8 per cent to 900 pence.
Reuters
