Pubs, bookies and builders drive budget bounce for UK mid-caps

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By Lucy Raitano

LONDON (Reuters) – UK mid cap stocks enjoyed a lift on Wednesday as market players deemed the new Labour government’s first UK budget to be less punitive on businesses than many had previously feared.

Mid-cap stocks outperformed the blue-chip index, even as UK finance minister Rachel Reeves announced a raft of new tax rises to the tune of 40 billion pounds a year, which would mostly affect businesses.

“UK Chancellor Rachel Reeves has delivered a tough but fair budget, much of which was already expected as it had been leaked to the market,” said Adrian Gosden, UK equities and fund manager at Jupiter Asset Management in London.

“The UK is open for business.”

Domestically-focussed stocks led a charge higher, with shares of pubs, homebuilders and gambling platforms the biggest beneficiaries.

At 1507 GMT, the mid-cap FTSE 250 index was up 0.4% having risen as much as 1.7% during the budget, while the FTSE 100 was last down 0.5%, barely changed from the day’s open.

Small cap stocks got an even bigger boost. The FTSE AIM index rose by nearly 4%, on course for its biggest one-day rally since April 2020, after the government cut business property relief on AIM-listed shares to 50%, rather than scrapping it altogether as investors had feared. 

“AIM shares have been depressed for some time, partly due to the inflation and monetary policy backdrop, as well as the build up to this budget. But with this hurdle now mostly cleared, and interest rates beginning to fall, there is a clear runway for growth for these smaller companies,” said Amisha Chohan, head of small cap strategy at Quilter Cheviot.

Eustace Santa Barbara, who co-manages the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth funds, said with this uncertainty out of the way, the outlook for small caps looked more positive.

“This might not be the catalyst for a dramatic turnaround in investor sentiment on UK smaller companies, but we see it as a step in the right direction,” he said.

“The most likely policy boost for this market was always going to be monetary rather than fiscal, and further rate cuts should deliver that in due course,” he said.

Britain’s banks rose as the budget avoided a levy on their profits, with a basket of UK banks turning positive.

A basket of UK homebuilder stocks surged as much as 3.7% and was last up 2% after Reeves pledged over five billion pounds ($6.48 bln) of housing investment. Crest Nicholson, Persimmon and Taylor Wimpey rose between 2.2%-4.8%.

Betting companies including Ladbrokes-owner Entain and Flutter Entertainment rose to the top of the FTSE 350, up 6.5%-7.6% after Reeves left taxes on the sector unchanged.

Pub stocks also enjoyed a lift after Reeves announced a cut to duties on alcoholic drinks in pubs, and extended England’s business rates relief for retail and hospitality. Wetherspoons, Marstons and Mitchells & Butlers were last up 2.4%-5.4%.

Elsewhere, a basket of UK utilities names ticked higher, up as much as 1.4%.

Clean energy tech company Ceres Power shares rose 4.9%, with the budget including an announcement for eleven new green hydrogen projects.

Oil and gas companies Hunting and Harbour Energy were up 2.6%-4.3%.