By Carla Mozee, MarketWatch
U.K. stocks strengthened Thursday as oil and property shares gained in the wake of the British government’s annual budget plans.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.04% climbed 0.6% to 6,175.49, overcoming losses logged before U.K. Treasury chief George Osborne outlined the Conservative government’s fiscal 2016 budget.
The midcap FTSE 250 index /zigman2/quotes/210598417/delayed UK:MCX +0.49% also finished higher Wednesday, rising 0.7% to 16,752.80.
While the oil sector scored wins following the budget outline, some midcap beverage stocks were stung by an unexpected plan to tax sugary drinks.
Attention now turns to the U.S. Federal Reserve, which will release its policy decision late Wednesday. Investors will look for clues as to when the Fed will begin raising interest rates again.
Oil: BP PLC /zigman2/quotes/207305210/composite BP +1.48% rose 2.4% and Royal Dutch Shell PLC moved up 3%. Shares extended gains after Osborne said the Petroleum Revenue Tax will be “effectively abolished” on North Sea oil fields, a move that comes as the industry battles a collapse in oil prices. Also, a supplementary charge for oil and gas producers will be chopped down to 10% from 20%.
Midcap energy services provider John Wood Group PLC tacked on 2.7% and Tullow Oil PLC /zigman2/quotes/205079109/delayed UK:TLW +0.81% pushed up 7.9%. Tullow on Wednesday reported positive findings at a well it’s exploring in Northern Kenya.
Sugar tax: Soft drinks makers A.R. Barr PLC /zigman2/quotes/206898740/delayed UK:BAG 0.00% and Britvic PLC /zigman2/quotes/208055220/delayed UK:BVIC +0.71% lost 2.4% and 1.3%, respectively on the FTSE 250. The declines came on the government’s plan to raise £530 million, aimed for school-sports funding, from a sugar tax to be paid by producers and importers of soft drinks.
Shares of Tate & Lyle PLC /zigman2/quotes/205109332/delayed UK:TATE -0.13% fell 1%. Liberum in a note said Tate & Lyle could benefit as it produces the Splenda and Tasteva sugar substitutes.
/zigman2/quotes/210598417/delayed UK:MCX +0.49% Home builders, insurers: Blue-chip property shares rose as a new LifeTime ISA plan will allow savers under 40 to use funds toward a deposit on their first home. Home builder Barratt Developments PLC /zigman2/quotes/209812640/delayed UK:BDEV +0.68% bounced up 3.2% and Berkeley Group Holdings PLC /zigman2/quotes/202576163/delayed UK:BKG +1.14% rose 2.6%.
Insurance companies will see a 0.5% increase on insurance premiums. “The market had expected approximately a 3% increase,” said Guy Ellison, head of U.K. equities at Investec Wealth & Investment, in a note. Among insurers, Direct Line Insurance Group PLC /zigman2/quotes/201952264/delayed UK:DLG +1.33% climbed 1.8%.
Sterling sags: The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.6962% fell in part as the Office for Budget Responsibility cut its U.K. growth outlook. Sterling fell to $1.4086 from $1.4155 late Tuesday, and found no support after data released earlier Wednesday showed the U.K. wages grew at a faster-than-expected pace.
Investors are facing a June 23 “Brexit” referendum, which will determine whether the U.K. should ditch its membership in the European Union.
“Although the jobs data was good, until we get past the referendum that’s going to be the main driver” for sterling, said James Ruddiman, head analyst at foreign exchange advisory Audere Solutions.
With plans for further austerity, “there’s not going to be real support for growth and there’s not going to be additional stimulus to really push [the Bank of England] to vote to hike rates, probably not until next year,” he said. Ruddiman expects a rate increase to take place in the first quarter of 2017.
Other movers : London Stock Exchange Group PLC shares fell 1.2%. The company and Deutsche Börse AG /zigman2/quotes/205502669/delayed DE:DB1 0.00% agreed to an all-share merger, creating Europe’s biggest securities-markets operator worth more than $30 billion.
TUI AG /zigman2/quotes/207049334/delayed UK:TUI -10.61% shares fell 5.6% and Thomas Cook Group PLC lost 6.7% following a downgrade to sell by Citi of the tour operators.