LONDON MARKETS: FTSE 100 Climbs After U.K. Budget Plan; Pound Slides To 2010 Lows

By Carla Mozee, MarketWatch

Standard Chartered lands ratings upgrade

LONDON (MarketWatch)--Stocks climbed in London Wednesday, extending gains after the government laid out its budget, but the pound was hit against the dollar as slower-than-expected wage growth and dovish Bank of England comments underscored expectations that interest rates will be left on hold.

Stocks: The FTSE 100 was up 1.4% at 6,933.36 and the midcap FTSE 250 rose 0.9% to 17,355, after Chancellor of the Exchequer George Osborne presented the coalition government's 2015 budget to lawmakers. It is the final budget before the U.K. general election in May.

The budget generally met projections, "with all the giveaways that one might expect to various constituents...including pensioners, measures to address inequality for the lower-paid, and the squeezed middle classes...as he is going to raise threshold that one starts paying 40% tax," said Nick Beecroft, senior market analyst at Saxo Bank.

The chancellor discussed overhauling taxes for the North Sea oil industry, which has been hurt by the slide in oil prices. The measures could add up to GBP1.3 billion in tax reductions. Shares of major oil companies Royal Dutch Shell PLC and BP PLC bounced up 1.4% and 1.3%, respectively. But BG Group PLC was off 0.6%.

Housing stocks stayed higher, with the "imaginative idea of matching a 25% contribution to whatever people save toward home deposits," Beecroft said. Home builder Taylor Wimpey PLC climbed 2.5%, Barratt Developments PLC was up 0.9% and Persimmon PLC rose 0.4%.

Bank shares largely held gains after Osborne announced plans to increase an annual bank levy by 0.21%, a move he said will raise GBP900 million to support economic recovery following the financial crisis. HSBC PLC was up 0.9% and Barclays PLC picked up 0.2%.

Shares of Lloyds Banking Group PLC slightly extended losses to 0.7%, after Osborne said the government will sell more than GBP9 billion shares in the lender this year. The bank is roughly 24% owned by the government, stemming from its bailout in 2007.

Stock in Royal Bank of Scotland traded lower by 0.8%, but Standard Chartered PLC rallied 7.2%, extending gains as the Asia-focused bank started the session with a ratings upgrade to overweight from equal weight at Barclays.

Among the few decliners on the FTSE 100, miner Randgold Resources Ltd. fell 0.2% and enterprise-software maker Sage Group PLC was fractionally lower.

Osborne outlined plans to tackle tax evasion that would raise GBP5 billion a year. Such plans include the so-called "Google Tax" that will be implemented on April 1 (http://www.marketwatch.com/story/uk-lays-out-how-google-tax-will-work-2014-12-11). The 25% tax on profit of multinational technology and other firms was detailed in December.

He also outlined forecasts from the Office for Budget Responsibility (http://www.marketwatch.com/story/uk-budget-forecasts-strike-upbeat-tone-for-economy-2015-03-18), including a 2015 growth forecast of 2.5% from 2.4% estimated in December, and a projection the country will borrow a less-than-previously forecast GBP90.2 billion ($133 billion) in the year to March 2015.

Sterling: The pound (GBPUSD) fell to $1.4664 from $1.4749, knocked back to levels last seen in mid-2010. Wednesday's drop came after minutes from the Bank of England's March policy meeting (http://www.marketwatch.com/story/bank-of-england-sounds-alarm-over-stronger-pound-2015-03-18) showed officials are concerned a rise in the pound against currencies of the U.K.'s key trading partners will weigh on prices for imported goods, keeping inflation levels lower for longer.

Annual inflation in January was 0.3%, well below the bank's 2% target, giving little reason for the central bank to raise its benchmark rate from the record low rate of 0.5%. All nine policy members in March voted to hold the rate steady.

At the same time, January data from the Office for National Statistics showed annual wages grew by 1.6% excluding bonuses. Analysts polled by FactSet had expected growth of 1.8%.

"The recent positive run of earnings data has countered the low headline inflation readings, but this lower wage growth is now concerning," wrote Alex Edwards, head of the corporate desk at UKForex, in a note.

Investors will turn to the Federal Reserve's policy statement that's due after trading closes in the U.K., and there's concern the central bank will indicate it'll begin raising interest rates this summer.

Against the shared European currency, the pound (GBPEUR) pound was buying 1.3816 euros compared with around EUR1.3912 late Tuesday.

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