Strong miners helped move Britain's top shares higher on Wednesday, on a budget day that brought a mixed outlook for UK corporates. J Sainsbury fell sharply after a downbeat trading update, while sector peers firmed after the budget, as did housebuilders which got a first-time property buyers boost, while North Sea-focused oil firms were hit by a tax rise.
The FTSE 100 closed up 33.17 points, or 0.6 percent, at 5,795.88, having ended down 0.4 percent on Tuesday. Pre-budget, the spotlight fell on Sainsbury, the most traded stock across Europe at 421 percent of its 30-day average, with the FTSEurofirst 300 trading only 84 percent of its 30-day average.
The grocer topped the blue chip fallers' list, off 5.4 percent, after it missed fourth-quarter sales forecasts, stoking fears of a downturn in consumer spending. But money managers saw opportunities among UK consumer stocks, which have been poor performers in recent months.
Jeremy Thomas, chief investment officer UK equities at fund manager RCM, who oversees about 2 billion pounds ($3.27 billion), has been gradually adding new investments in selected companies such as Tesco, "which is now trading on a lower valuation than at any time in its history".
Thomas said that while profit expectations for more cyclical retailers such as Next may continue to fall, "if their share prices decline much further, this will be a chance for long term investors to buy good franchises at terrific prices". Shares in Tesco firmed 0.3 percent, while Next advanced 1.5 percent ahead of its full-year results on Thursday, with traders optimistic about its online sales.
Whilst Sainsbury's results highlighted challenges currently facing the UK consumer, help with soaring petrol prices offered by finance minister George Osborne in his budget for the 2011/12 fiscal year was welcomed by the market. Fuel duty is to be cut by 1 penny per litre, taking effect in petrol stations from 1800 GMT tonight. "The petrol duty is a big headline grabber. It's a bit of a relief to everyone, and will be a good shock for consumer confidence so you can read across that that's good for the economy," Joe Rundle, head of trading at ETX Capital, said.
Also aiding investor sentiment, he said, was the fact the Bank of England's Monetary Policy Committee maintained its 6-3 split in favour of keeping rates on hold this month. On the second tier, UK housebuilders received a boost from the budget statement, aided by news that from this year's bank levy the government will fund a 250 million pounds commitment to first-time buyers. Redrow, Barratt Developments and Taylor Wimpey added 2.5 to 3.3 percent.
North Sea-focused oil firms, however, lost out, as Osborne raised the supplementary tax charge levied on oil and gas production in the UK to 32 percent from 20 percent. Midcap Enquest sagged 12.5 percent. Back among the risers, Kazakh miner Eurasian Natural Resources climbed 3.5 percent after it met forecasts with full-year underlying profit that more than doubled. Sector peers were in demand as copper prices rose, and after mining executives said reconstruction in Japan after the earthquake would be bullish for metals.