The FTSE 100 held onto gains on Wednesday after Chancellor Rachel Reeves delivered a Spring Statement that offered more negatives than positives for investors.
London’s leading index had started the session on the front after UK inflation unexpectedly cooled to 2.8%, sending the pound lower against the dollar and providing support for London’s overseas earners. This was the key driver of the FTSE 100’s gains on Wednesday.
Many of Rachel Reeves’ Spring Budget’s headline-grabbing items were widely covered before today’s delivery, so changes to welfare and the NHS were of little consequence to markets.
However, a revised OBR UK growth forecast of just 1% for this year, down from 2%, was a major negative for investors. The FTSE 100 quickly gave up 20 points on the revised forecasts before recovering to trade up 0.2% at the time of writing.
Housebuilders were among the shares most impacted, with Taylor Wimpey, Persimmon, and Barratt Redrow giving up gains and turning negative during the Spring Statement before snapping back.
Notably, the government conceded it wouldn’t hit its prior 1.5m new homes target by revising its forecast of new home construction to 1.3m over the parliament.
Reeves again committed to reforming the planning systems, but this is old news, and investors would have been hoping for more from the Chancellor.
“Reforming the planning system is obviously important,” said Paresh Raja, CEO of Market Financial Solutions.
“However, investors and developers are unlikely to commit to new projects unless they see a strong and growing economy that provides long-term confidence and a return on their investment. The OBR forecasts were a blow in this regard, and the onus must now be on turning the corner to turbo-charge GDP growth.”
BAE Systems pared earlier losses as Reeves outlined plans for the UK to become a defence ‘powerhouse’ and promised to increase defence spending to 2.5% in this parliament.
Shell again contributed to the FTSE 100’s gains on Wednesday, as investors continued to buy into the oil majors after it announced an eye-catching new strategy yesterday.
Imperial Brands was the top faller after releasing a soft trading update and lower profit guidance. Imperial Brands shares were down 3% at the time of writing.