MARKET COMMENT: Annuity Providers, Betting Firms Hit By UK Budget

LONDON (Alliance News) - London's blue-chip and mid-cap indexes closed lower Wednesday as annuity providers and betting companies were hard hit by Chancellor of the Exchequer George Osborne's changes to pension rules and a hike to gaming machine duty

The FTSE 100 closed down 0.5% at 6,573.13, the FTSE 250 closed down 0.1% at 16,338.84, while the AIM All-Share index outperformed and closed up 0.2% at 868.95.

Delivering his fifth budget, Osborne did away with compulsory annuities, giving people far more control and flexibility over how they manage their pension pots as they plan for retirement.

From April 2015, the government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement. The government has published a consultation on how to implement the changes.

Drawdown of pension income under the new, more flexible arrangements will be taxed at marginal income tax rates rather than the current rate of 55% for full withdrawals, while people will be able to take all their pension savings as a lump sum, draw them down over time, or buy an annuity.

FTSE 100-listed life insurers Legal & General, Aviva, Resolution, and Standard Life closed the day down 7.5%, 5.2%, 4.5%, and 3.1%, respectively, with FTSE 250-listed Phoenix Group Holdings closing down 5.2%. Specialist annuities provider Partnership Assurance closed down 55%, with its losses mounting after it had earlier reported a slowdown in new business sales in the fourth-quarter of 2013 and said it expected to record a further fall in the first-quarter.

Betting companies suffered a similar fate, dropping sharply, after the Chancellor said that the government will raise duty on gambling machines to 25% from March 1, 2015, from the current 20%.

William Hill closed down 6.8%, making it the second biggest loser in the FTSE 100, while Ladbrokes closed down 14%, meaning it ended the day as the third biggest faller in the FTSE 250.

Rank Group's shares moved in the opposite direction, closing up 6.8%, after the company seized on the Chancellor's decision to halve the bingo tax to 10% and announced plans to open three new bingo clubs.

Hargreaves Lansdown ended the day as the biggest gainer in the FTSE 100, up 14%, after Osborne said the ISA saving limit will rise to GBP15,000, from GBP11,520, and will be fully transferable between cash and stocks. As one of the biggest providers of private client ISA's, Hargreaves Lansdown seems set to benefit from this change, although analysts suggest that the actual tax gain from the increase to the cash ISA limit at current best buy rates is just GBP30.

Osborne again hailed the success of the current government's policies as he revealed the latest growth forecasts from the Office for Budget Responsibility, though he stuck to the same script that there's more to do.

The OBR now expects the UK economy to grow at 2.7% in 2014, revised up from 2.4% previously.

"That is the biggest upward revision to growth between Budgets for at least 30 years," Osborne said.

The growth forecast for next year was hiked to 2.3% from the 2.2% seen in December, while the projections for 2016 and 2017 were left unchanged at 2.6%. However, the outlook for 2018 was cut to 2.5% from 2.8%.

The pound rose early Wednesday after the Office for National Statistics released some better-than-expected UK unemployment numbers which showed wages growing and activity picking up.

Unemployment fell faster-than-expected in January, dropping by 34,600 compared with the 33,900 drop in December, and exceeding economists' expectations of a more modest 25,000 decline. For the three months to January, unemployment totalled 2.33 million, down by 63,000 from the August to October period. Employment continued to grow strongly, with a 105,000 gain in the three months to January.

As expected, the headline three-month rolling average rate of unemployment remained stable at 7.2%, the same level seen in the final quarter of 2013, but down from the 7.4% in the three months to October.

“Despite the unemployment rate remaining static at 7.2%, the latest labour market figures point to a continued improvement in both activity and wage inflation,” said George Buckley, chief UK economist at Deutsche Bank.

Average weekly wage rose more-than-expected in January by 1.4% year-on-year, up from 1.2% in December, the fastest rate of growth since July 2013, and edging closer towards the current rate of inflation of 1.9%. Excluding bonuses, averages earnings rose 1.3%, up from 1.0% in December. Economists had been expecting the figure to rise by 1.3% including bonuses, and by 1.2% excluding them.

“While wage growth remains benign compared to its pre-crisis average of around 4%, the firmer tone in recent months chimes with a range of other evidence suggesting the slack in the economy may be narrowing,” said BoA Merrill Lynch.

The data saw the pound jump against its major rivals. At the close of the UK equity market, sterling was trading at USD1.6637, EUR1.1953, CHF1.4542 and JPY168.965.

The minutes from the Monetary Policy Committee's meeting on March 5-6 showed that members voted unanimously to keep interest rates unchanged at 0.50% and to maintain the central bank's GBP375 billion quantitative easing.

Away from the Budget, Imagination Technologies Group closed up 10%, making it the leading gainer in the FTSE 250. The firm's shares rose after it said it has developed a new suite of graphics processors for mobile phones and other consumer devices. It said the new Wizard family of PowerVR Ray Tracing GPUs "dramatically" improves graphics, increasing realism and performance.

Ophir Energy, closing down 15%, was one of the index's biggest losers. The oil and gas exploration and production company said it failed to find significant hydrocarbons in targeted reservoirs through drilling at the Padouck Deep-1 well in the Ntsina Block, offshore Gabon.

Investors' attention will now turn to the US, where the Federal Reserve is expected to reduce its monthly bond-buying programme by a further USD10 billion at the conclusion of its two-day policy meeting later Wednesday. The central bank may also signal a change in its threshold for hiking interest rates.

The announcements are followed by Fed Chair Janet Yellen's first press conference as head of the central bank at 1830 GMT.

Ahead of the release, US equity markets are flat to slightly lower. At the UK equity market close, the NASDAQ Composite is down 0.1%, while the DJIA and S&P 500 are fractionally lower.

In the data calendar Thursday, German PPI figures are released at 0700 GMT, ahead of the UK CBI industrial trends survey at 1100 GMT. In the afternoon, US initial and continuing jobless claims data are scheduled for 1230 GMT. US existing home sales data and the Philadelphia Fed manufacturing survey are released at 1400 GMT, while US bank stress test results will be released at 2030 GMT.

In the corporate calendar, FTSE 100-listed Next is joined by FTSE 250-constituents Ted Baker, Savills, UK Commercial Property Trust, Premier Farnell and Ophir Energy in releasing full-year results for 2013. Blue-chip United Utilities and mid-cap Investec provide trading statements, while Crest Nicholson releases an interim management statement.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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