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March 3, 2021, 10:58 a.m. EST

London stocks up modestly after U.K. budget announcement

By Barbara Kollmeyer

Stocks in London rose modestly on Wednesday, with hospitality and home builders rising after Chancellor of the Exchequer Rishi Sunak announced a spring budget that included benefits for both sectors, though taxes went up for corporations.

The FTSE 100 index (FTSE:UK:UKX) rose 0.3% to 6,637.35, while the pound (XTUP:GBPUSD) fell 0.3% against the U.S. dollar to $1.3935. Stocks fell across Europe and the U.S. as bond yields on both sides of the Atlantic crept higher.

“The budget was more stimulative than expected in the near term, with additional support resulting in a net giveaway of £65 billion ($90 billion) in 2021/22, equivalent to 3.1% of 2020 GDP [gross domestic product],” noted Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, in a note to clients.

Sunak announced an extension of the furlough program and relief for businesses and the hospitality and tourism sector, which got an extension of the 5% rate of value-added tax until end of September.

Read: London set to overhaul listing rules to attract tech IPOs and cash in on blank-check boom

For home builders, the extension on stamp duty, or taxes on property bought in the U.K., was stretched for another three months, and a plan was announced for the government to back mortgages with 5% down.

The stamp duty move was a bit of a surprise, noted Stephen Payne, portfolio manager in the global equity team at Janus Henderson.

“The new government mortgage guarantee scheme for high LTV [loan-to-value] mortgages is clearly targeted at helping ‘generation rent’ become ‘generation buy.’ This should be well received by the house building sector, although a similar scheme before saw only limited uptake in actuality,” said Payne, in a note to clients.

Shares of home builder Persimmon (LON:UK:PSN) , which also announced results and said its second-half recovery continued into 2021, rose over 5%, leading the FTSE 100 gainers. Shares of Barratt Developments (LON:UK:BDEV) and Taylor Wimpey (LON:UK:TW) rose by a similar amount. In the hospitality sector, shares of hotel and restaurant group Whitbread (LON:UK:WTB) rose around 6%.

Banks rose, as Sunak predicted the economy will grow 4% this year and 7.3% by next year, even though 700,000 people have been left without jobs. “A stronger near-term economic outlook than previously expected bodes well for the sector,” said Russ Mould, investment director at AJ Bell, in a note to clients.

Shares of HSBC (NYS:HSBC) rose 2%, those of Barclays (NYS:BCS) (LON:UK:BARC) climbed 4%, and Lloyds Banking (LON:UK:LLOY) (NYS:LYG) rose around 3%.

Sunak also announced a rise in corporation tax to 25%, but also slipped in so-called “super-deduction relief,” in which companies that invest in their own businesses over the next two years can reduce their tax bills. Companies with profits under £50,000 will remain at a 19% corporation tax rate.

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