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(Alliance News) - Stocks in London were higher by midday on Friday, managing to shake off a gloomy economic backdrop, while the pound got a boost from market acceptance of Thursday's UK government budget.
The FTSE 100 index was up 59.99 points, 0.8%, at 7,406.53. The FTSE 250 was up 124.03 points, 0.7%, at 19,246.34, and the AIM All-Share was up 2.3 points, 0.3%, at 837.23.
The Cboe UK 100 was up 0.8% at 740.62, the Cboe UK 250 was up 0.8% at 16,572.19, and the Cboe Small Companies was up 0.1% at 12,868.12.
Sterling strengthened further against the dollar, with the pound quoted at USD1.1913 midday Friday, up sharply from USD1.1779 at the London equities close on Thursday.
"After yesterday's autumn statement-driven fall, the pound managed to claw back some of its losses versus the US dollar as investors had time to digest the information and the new economic outlook for the UK," said AJ Bell investment director Russ Mould.
UK Chancellor Jeremy Hunt on Thursday set out his plans for GBP55 billion of tax hikes and spending cuts against the backdrop of a bleak set of economic forecasts from the Office of Budget Responsibility, underlining the damage wreaked by the war in Ukraine.
Hunt said the OBR concluded the UK "like other countries" is now in recession and was facing an increase in unemployment.
While growth in gross domestic product was expected to be 4.2% in 2022, in 2023 the economy was forecast to shrink by 1.4% before growth of 1.3%, 2.6%, and 2.7% in the following three years.
"The message from the event was simple – taxes are going up, there will be big spending cuts, and the economy is looking a bit fragile near-term. None of that should be a surprise, hence why there is relative stability on the markets. A plan is in place to sort out the government's finances and consumers and businesses will have to grit their teeth while it is enacted," Mould continued.
However, while the budget seems to have calmed the markets, it is not without controversy.
Institute for Fiscal Studies Director Paul Johnson questioned whether spending cuts due to kick in after 2025 could be delivered, with services such as the police, the courts and local government facing "a very difficult few years".
"Delaying all of the difficult decisions until after the next general election does cast doubt on the credibility of these plans. The tight spending plans post-2025, in particular, may stretch credulity," he said.
Johnson warned that the drop in living standards forecast is the "biggest fall in living memory" and comes "off the back of very poor income growth for many years".
"The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey," Johnson warned.
In European equities on Friday, the CAC 40 in Paris was up 1.1%, and the DAX 40 in Frankfurt was up 1.0%.
The euro traded at USD1.0374, rising from USD1.0326 late Thursday. Against the yen, the dollar was quoted at JPY139.78, down from JPY140.61.
In London, Legal & General added to its gains from the morning, up 4.2% at midday.
The insurer reiterated annual profit guidance, and said its pension risk transfer business continues to perform "strongly" with recent new-business wins.
In its year-to-date, the pension risk transfer business, Legal & General Retirement Institutional, has transacted or is in exclusive negotiations on GBP9.3 billion of global PRT business, exceeding the 2021 figure of GBP7.2 billion of global PRT secured.
Looking ahead, L&G said it expects to deliver operating profit growth for 2022 to be in line with the 8% delivered in the first half, with annual capital generation expected at GBP1.8 billion. In the first half, operating profit was GBP1.16 billion, up 7.4% from GBP1.08 billion the year before.
There were some modest gains among blue-chip miners, with Anglo American up 1.6% and Fresnillo up 1.7%.
Gold was quoted at USD1,764.62 an ounce at midday on Friday, higher than USD1,758.92 on Thursday.
Brent oil was trading at USD89.48 a barrel, down slightly from USD90.02.
Among London mid-caps, Bodycote added 4.2%.
The Cheshire-based supplier of heat treatments and specialist thermal processing services said revenue from July 1 to October 31 amounted to GBP258 million, representing a 29% increase year-on-year from GBP200.1 million.
Bodycote said volume and foreign exchange translation each contributed 7% to revenue growth. It revenue figure benefits from "price increases and energy surcharges of approximately 15% in total". It added that Civil aerospace volumes continue to grow strongly, with General Industrial volumes growing more modestly and automotive volumes flat.
Looking ahead, Bodycote expects to deliver full-year results in line with expectations.
Smallcap housebuilder MJ Gleeson fell 7.1%.
The Sheffield, England-based housebuilder and land investor said over the past six weeks, Gleeson Homes cancellation rates increased to 41%, from 20% in the first ten weeks of the year
"The market volatility and sharp increase in interest rates following the mini budget impacted buyer confidence and caused a significant slowdown in demand," the firm said.
However, Gleeson said it is "encouraged" by Thursday's autumn statement, and it expects buyer confidence to recover as the volatile macroeconomic backdrop calms down.
"There remains the problem of affordability which could stop many people from making a property transaction, even if they really wanted to move. However, Gleeson's properties are already at the more affordable end of the housing market, so it is better placed than many of its peers to push on through," AJ Bell's Mould commented.
On AIM, Parsley Box jumped 58%. Just 20 months after its initial public offering, the food delivery service has proposed to re-register as a private limited company.
At the general meeting next month, the proposal needs 75% approval of votes cast by shareholders. Parsley Box said it received irrevocable undertakings representing about 36% of the company's issued share capital to vote in favour of going private.
"Another day and another recent IPO goes up in smoke," AJ Bell's Mould said, "While the cost of living crisis didn't help, the proposition behind Parsley Box always looked a little shaky. Why would people pay more to have premium ready meals delivered when they could easily get them from supermarkets at a much cheaper price?"
"Looking back 2021 is proving to be anything but a vintage year for IPOs with other new names like In The Style, Revolution Beauty and Seraphine seeing their valuations collapse."
Furniture seller Made.com, which also debuted in London last year, fell into administration earlier this month.
Among AIM fallers was Eco Atlantic Oil & Gas, down 55%.
The oil and gas explorer said that its Gazania-1 well had reached its target depth of 2,360 metres but did not show evidence of commercial hydrocarbons.
The well, which was spudded on October 10, will now be plugged and abandoned.
"While it is naturally disappointing not having made a commercial discovery, the Gazania-1 well was only the first of four wells we have planned for the next 18-24 months across our wider portfolio," said Co-Founder & CEO Gil Holzman.
Stocks in New York were called higher, with the DJIA up 0.4%, the S&P 500 index up 0.6%, and the Nasdaq Composite up 0.8%.
By Elizabeth Winter; elizabethwinter@alliancenews.com
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