FTSE recovers after absorbing debt revelations

THE London market gave a lukewarm response to Alistair Darling’s Budget yesterday as the pound also slumped after eye-watering forecasts for public finances.

The FTSE 100 Index dipped into the red as the Chancellor’s prediction of a return to economic growth towards the end of this year was overshadowed by news that public borrowing would balloon to £175bn this year.

The Footsie later recovered some lost ground. It rose 43.2 points on the day to breach the psychologically important 4,000-point barrier, finishing at 4030.66.

However, sterling dropped by nearly 2% against the euro, to 1.11 euros, and fell to 1.45 US dollars – a fall of more than 1%.

Life and pensions firms were among the blue chips that were hardest hit, plunging in response to the Government’s move to restrict pension tax relief for those earning more than £150,000.

Friends Provident led declines in the sector, while Prudential also fell.

Joshua Raymond, market strategist at City Index, said: "The borrowing figures are massive and investors have taken Darling’s GDP projections as slightly optimistic."

He added: "The market’s reaction demonstrates that the Budget has not calmed their nerves, and the cost of borrowing over the next three years has weakened sterling considerably against its US and EU counterparts."

The gloomy borrowing figures sent the pound lower, erasing some of the recent headway made against the dollar and the euro. Sterling’s strength is closely linked to views on the strength of the UK economy and its public finances, which have been left in a sorry state by the financial crisis and recession.

But some stocks rose after the Budget, with Barclays and Lloyds Banking Group rising, as many of yesterday’s announcements were widely expected.

Analyst Barrie Cornes of Panmure Gordon said: "The Budget was not great news for financial stocks, but not as bad as it could have been."

Measures to help builders and the property market allowed housebuilding stocks to rise higher.