Investors have reacted in a mixed fashion to the Budget after Chancellor Rishi Sunak pledged to extend furlough and support for businesses, continue relief on stamp duty and refrain from raising income tax.

The blue-chip FTSE 100 was trading 0.6% higher at 6,654 shortly after the Chancellor’s speech, losing half of the gains seen at the market open, while the more domestically focused FTSE 250 midcap index traded 1.2% higher at 21,431.

Part of the muted reaction from the exporter-heavy FTSE 100 was down to a rise in the pound, with sterling up 0.45% against the euro and 0.15% against the US dollar.

The chancellor said more than 700,000 people have lost their jobs since the pandemic began, with the economy shrinking by almost 10% last year while borrowing is up.

But the economy will recover, Sunak said, with forecast growth of 4% this year and 7.3% next year. He added that once recovery begins, the Government will begin fixing the public finances.

However, he added Covid-19 has done damage and that the economy will be 3% smaller in five years.

Banking stocks reacted positively to the budget, with Barclays (BARC) rising 3.6% to 168p, Lloyds (LLOY) up 2.1% to 39.7p, NatWest (NWG) gaining 1.7% to 188.7p and HSBC (HSBA) increasing 1.6% to 430p. A stronger near-term economic outlook than previously expected bodes well for the sector.

One of the most eye-catching announcements confirmed in the budget was that the furlough scheme will be extended to the end of September.

Leisure and hospitality stocks – which have been among the hardest hit during the pandemic – jumped on the news of both the furlough extension, and the continuation of a 5% reduced rate of VAT for tourism and hospitality extended to September, interim rate of 12.5% for further six months, and not returning to standard rate of 20% until April next year.

Pub company JD Wetherspoon (JDW) gained 5% to £13.09, Premier Inn owner Whitbread (WTB) rose 5.1% to £35.81 and cinema chain Cineworld (CINE) jumped 9.4% to 114.3p.

The chancellor also confirmed the up-to-£500,000 nil-rate band for stamp duty will finish at the end of June, rather than the end of March as planned, and that first-time buyers will get a Government guarantee on 95% mortgages.

Most of the big banks will be offering the 95% mortgages from next month, with the chancellor saying: ‘We want to turn Generation Rent into Generation Buy.’

Housebuilders gained on the news, with Persimmon (PSN) one of the top risers in the FTSE 100 with a 4.9% gain to £28.43. Other housebuilders including Taylor Wimpey (TW.) and Barratt Developments (BDEV) rose 3.8% to 172p and 3.5% to 708p respectively, with Berkeley (BKG) up 2.7% to £43.63 and Redrow (RDW) rising 3.5% to 579.5p.

Another eye-catching announcement was the confirmation of the first ever UK Infrastructure Bank based in Leeds to drive a ‘Green Industrial Revolution’ and support public and private projects. Sunak said the bank will have an initial £12 billion capitalisation and expects to support £40 billion of projects, funding the likes of big offshore wind projects.

There will also be a new retail savings product to give savers the chance to support green projects.

Initial share price reaction from renewable infrastructure funds was relatively muted, with John Laing Environmental Assets (JLEN) edging just 0.6% higher to 114.7p, Greencoat UK Wind (UKW) up 1.2% to 130.1p and The Renewables Infrastructure Group (TRIG) just 0.3% higher to 130.2p.

News of a scheme to offer 130% tax relief on business investment lifted BT (BT.A) 6.2% to 133.7p. With planned investment in broadband infrastructure likely to significantly reduce its tax bill.

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Issue Date: 03 Mar 2021