BENGALURU: The FTSE 100 index hit session lows on Thursday, while midcap stocks cut losses sharply after UK Finance Minister Jeremy Hunt set out plans to cut spending and raise taxes in the latest budget for the country facing a severe cost-of-living crisis.

The exporter-heavy FTSE 100 dropped 0.7% to one-week lows as the pound pared some losses following the statement. The currency was last down 0.5%.

The more domestically exposed FTSE 250 index cut losses sharply and was last down 0.2%.

Hunt sought to bury Britain’s failed “Trussonomics” experiment by cutting spending and raising taxes, a policy reversal from the unfunded tax cuts promised by former Prime Minister Liz Truss that sent British markets in a tailspin.

“It’s been a fairly muted reaction so far,” said Michael Baker, head of online services at Oval Money. “The market was looking to the UK to be a bit more responsible and I think they have done this with these spending cuts and tax increases.”

Britain’s economy is forecast to shrink next year, Hunt said, with the GDP projected to contract by 1.4% next year compared with an estimate for 1.8% growth, according to data published in March by the Office for Budget Responsibility.

UK’s energy index slipped 0.5% after Hunt said the government would increase a windfall tax on oil and gas firms and extend it to power generation firms. He was also looking to cut the tax-free allowance for dividend income and capital gains.

Power companies such as Drax, SSE and Centrica fell between 1.0% and 3.2%.

“The windfall tax on energy generators, while widely expected, is having a negative impact on the likes of Centrica and Drax. The cuts to capital gains tax allowances provide a further discouragement to invest in equities,” said Stuart Cole, head macro economist at Equiti Capital.

Data on Wednesday showed surging household energy bills and food prices pushed British inflation to a 41-year high in October, piling pressure on the Bank of England to keep on raising rates. But the scale of austerity announced could mean borrowing costs would rise at a slower pace.

Traders were placing 94% odds of 50 basis point rate hike in December versus 70% odds before the statement.

UK banks gained 0.3%.

Among individual stocks, Halma dropped 3.8% after the technology company reported a drop in its half-year statutory pretax profit.