London close: Stocks higher as Reeves delivers Spring Statement

(Sharecast News) - London stocks closed modestly higher on Wednesday, supported by investor reaction to the chancellor's Spring Statement and a larger-than-expected drop in UK inflation. The FTSE 100 index rose 0.3% to finish at 8,689.59 points, while the FTSE 250 added 0.29% to end the session at 20,039.20 points.

In currency markets, sterling was last down 0.46% on the dollar to trade at $1.2885, as it slipped 0.13% against the euro, changing hands at €1.1979.

"The FTSE 100 rose slightly on Wednesday as inflation figures were reported to be marginally lower than anticipated, providing reassurance to investors," said TickMill market strategy partner Patrick Munnelly.

"The value of sterling dipped slightly after the inflation figures were published.

"Economists cautioned that increasing energy costs will likely drive inflation upwards once more in the near future."

Munnelly noted that finance minister Rachel Reeves announced that public spending on a day-to-day basis was projected to increase by 1.2% annually in real terms.

"Last year, Reeves established a fiscal guideline aiming to align day-to-day public spending with tax income by 2030 to demonstrate to investors her commitment to maintaining control over public finances.

"Reeves reduced the government's proposed spending increases on Wednesday in an effort to adhere to her fiscal objectives, but risks in the global economy may lead to potential tax increases in the UK later this year.

"Reeves' Budget forecast update was overtaken by events, as the Office for Budget Responsibility (OBR) warned the government would miss a fiscal target under existing plans."

Despite previous claims that the targets were 'non-negotiable', Munnelly pointed to some of the key measures introduced by Reeves on Wednesday, including cuts to welfare and non-ring-fenced departmental spending.

"While no tax changes were announced, higher tax receipts are expected due to reduced tax avoidance.

"The OBR now projects the fiscal targets will be met but cautions that the government's flexibility remains limited, potentially leading to tough decisions in the Autumn Budget."

Chancellor unveils new economic strategy as consumer inflation slows

The UK government indeed unveiled a new economic strategy aimed at restoring fiscal stability while boosting long-term growth.

Chancellor Rachel Reeves outlined a package of spending cuts and investment pledges in her Spring Statement, including a reduction in welfare spending and a significant increase in defence funding, as part of a broader plan to meet the government's fiscal rules and shift the budget into surplus by the end of the decade.

Reeves projected the budget deficit would fall from £36.1bn in 2025-2026 to a surplus of £6bn in 2027-2028, rising to £9.9bn by 2030.

She said the measures would restore full headroom against her self-imposed fiscal constraints, adding that lowering debt and borrowing was essential to enable higher spending on public priorities.

The Chancellor also pledged £2.2bn in additional defence spending next year, arguing the move would strengthen both national and economic security by supporting Britain's defence manufacturing sector.

The Office for Budget Responsibility (OBR), which published updated forecasts alongside the statement, sharply cut its 2024 growth outlook to 1% from 2% previously.

However, it raised forecasts for later years in response to the government's investment and planning reform plans.

GDP was now expected to rise by 1.9% in 2026, before moderating slightly to between 1.7% and 1.8% through 2029.

Welfare reforms were expected to reduce spending by £4.8bn by 2029-2030.

Despite criticism from within her own party, Reeves defended the move as a necessary correction to a broken system.

"Today's statement saw the government meet its non-negotiable fiscal rules, but only after implementing further spending cuts," said Matt Swannell, chief economic advisor to the EY Item Club.

"A weaker-than-expected economy and increase in market interest rates saw all the £9.9bn headroom left after the budget was used up.

"However, the margin of error remains small...and once again risk being knocked off course by relatively normal shifts in the economy or financial markets."

On the inflation front, consumer price growth slowed more than expected in February, falling to 2.8% from 3% in January.

Core inflation eased to 3.5%, while services inflation held steady at 5%.

The OBR said it saw inflation continuing to ease, reaching 2.1% by 2026 and stabilising at the Bank of England's 2% target from 2027.

Housing data also pointed to persistent price pressures.

According to the Office for National Statistics, house prices rose 4.9% in the year to January, the fastest annual increase in a year, bringing the average UK home price to £269,000.

Meanwhile, average private rents rose 8.1% in the 12 months to February, with the sharpest increases recorded in Wales and England.

Ocado jumps on broker upgrade, Vistry drags on housebuilding sector

On London's equity markets, Ocado Group jumped 16.1% after JPMorgan upgraded the stock to 'overweight' from 'neutral', citing improved prospects for the online grocer.

Its joint venture partner Marks & Spencer also gained, adding 1.7%.

Defence contractor Babcock International rose 1.8% after securing a five-year extension to an existing contract with the Ministry of Defence, valued at around £1bn.

Sector peer QinetiQ advanced 6.8% despite a lowered price target and reduced forecasts from Citi, which maintained a 'buy' rating and highlighted long-term value.

Oil majors Shell and BP climbed 2.1% and 1.1%, respectively.

BP earlier confirmed it had finalised an agreement with Iraq to redevelop major oil fields in Kirkuk, with initial output potential exceeding three billion barrels of oil equivalent.

Ithaca Energy added 7.5% after reporting a strong start to the year, with performance at the top end of management expectations.

Bakkavor Group rose 3.3% following reports that rival Greencore had increased its takeover offer.

On the downside, Vistry Group slumped 7.3% after reporting a sharp drop in annual profit and suspending its dividend.

The housebuilder cited a difficult year marked by project cancellations and rising costs.

Its update also dragged on sector peers, with Bellway down 2.1% and Crest Nicholson off 1.4%.

Pub operator JD Wetherspoon slipped 1.8% after Deutsche Bank cut its rating on the pub chain to 'sell'.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,689.59 0.30% FTSE 250 (MCX) 20,039.20 0.29% techMARK (TASX) 4,671.01 -0.21%

FTSE 100 - Risers

Shell (SHEL) 2,831.00p 2.39% Next (NXT) 9,986.00p 1.94% Babcock International Group (BAB) 746.00p 1.84% Kingfisher (KGF) 244.50p 1.75% National Grid (NG.) 979.60p 1.49% Beazley (BEZ) 898.50p 1.47% Prudential (PRU) 838.20p 1.35% United Utilities Group (UU.) 988.40p 1.35% Rentokil Initial (RTO) 353.80p 1.32% SSE (SSE) 1,547.00p 1.28%

FTSE 100 - Fallers

Admiral Group (ADM) 2,818.00p -2.56% Smiths Group (SMIN) 1,974.00p -2.28% Schroders (SDR) 374.60p -1.99% Antofagasta (ANTO) 1,890.00p -1.87% easyJet (EZJ) 480.60p -1.72% Auto Trader Group (AUTO) 743.60p -1.69% Entain (ENT) 643.80p -1.62% Rightmove (RMV) 691.40p -1.55% JD Sports Fashion (JD.) 72.94p -1.06% Experian (EXPN) 3,585.00p -1.05%

FTSE 250 - Risers

Ocado Group (OCDO) 290.50p 16.29% Ithaca Energy (ITH) 157.60p 9.56% QinetiQ Group (QQ.) 403.00p 6.84% Trustpilot Group (TRST) 248.00p 6.21% HGCapital Trust (HGT) 520.00p 4.73% Kier Group (KIE) 130.60p 4.31% The Renewables Infrastructure Group Limited (TRIG) 75.10p 3.87% Raspberry PI Holdings (RPI) 501.50p 3.70% Morgan Advanced Materials (MGAM) 212.00p 3.67% Keller Group (KLR) 1,424.00p 3.34%

FTSE 250 - Fallers

Vistry Group (VTY) 601.50p -7.25% Future (FUTR) 812.00p -3.51% THG (THG) 34.82p -2.95% Baltic Classifieds Group (BCG) 318.50p -2.75% Kainos Group (KNOS) 701.00p -2.64% Bloomsbury Publishing (BMY) 602.00p -2.59% Computacenter (CCC) 2,510.00p -2.56% Allianz Technology Trust (ATT) 382.00p -2.05% Crest Nicholson Holdings (CRST) 172.10p -2.05% Renishaw (RSW) 2,640.00p -2.04%