Market Report: Investors underwhelmed by Chancellor's `grey' budget

The Chancellor's statement yesterday may have been dubbed the "green budget" but, as far as the market was concerned, it proved distinctly lacking in colour.

Footsie eased 43.8 points to 4,854.8 10 minutes after the Chancellor finished speaking. But at the end of the day, the market seemed underwhelmed by the contents of Gordon Brown's first green budget and closed just 35.1 points down at 4,863.5. Fewer than 650 million shares were traded.

As one equity strategist put it: "The market's getting straight back to worrying about serious issues like how bad the situation is in Asia."

The move to scrap Advance Corporation Tax in April 1999 had, in true New Labour style, been well-flagged. The 1 per cent cut in corporation tax was, however, welcomed in principle, although it failed to make much impact on share prices last night.

Some strategists said the markets may slide in the coming weeks in response to forecasts that economic growth would slow in 1999. The Chancellor said GDP would grow between 1.5 and 2 per cent in 1999, compared to growth of 2.25 to 2.75 per cent next year. Market-makers reflected the Chancellor's proposals to cut VAT on insulation materials by marking up Meyer International by 5.5p to 377p. Mr Brown said VAT on the installation of energy-saving materials would be cut from 17.5 per cent to 5 per cent. The builders' merchant was also helped along the way when several directors bought around 14,500 shares.

Some of the Hong-Kong influenced stocks rebounded from their lows of the day before, perhaps in relief that the events at Yamaichi had not prompted the global sell-off many had feared. HSBC, one of the worst blue- chip performers on Monday, added 2p to pounds 14.87.

Other factors also gave the rest of the financial sector a boost. Halifax moved up 3p on speculation that it might revive merger talks with M&G Group. M&G ended up 60p at pounds 14.60. NatWest Bank, meanwhile, moved ahead on reports it would split its equities business between two buyers, Bankers Trust and Deutsche Morgan Grenfell.

Safeway continued to recover from last week's profit warning, adding another 4.5p to close at 330p. The company, which was said to have been "shocked and surprised" to witness a 20 per cent fall in the company's market value after the profit warning, has embarked on briefings to reassure institutional investors. Some buyers may have emerged as a result of the confidence-building exercise, but bid speculation continued to revive the shares. Even though some analysts were adamant there was no bidder in the market, 7 million shares changed hands.

Safeway's rival retailer, Sainsbury, was not so flush. The group shed 6p to end at 483p after two explosive devices were found near stores in South-east London.

National Grid was sending sparks across the market after pledging to return pounds 770m to shareholders. The group jumped 4p to 302p, despite a 23 per cent fall in pre-tax profits to pounds 226.3m. That was as a result of price controls put in place by the regulator. A blizzard of positive brokers' notes also helped the stock.

Market-makers were not so sympathetic towards EMI, which provided neither sugar nor spice when it unveiled a 33 per cent drop in pre-tax profits to pounds 75m. The Spice Girls' record company has been badly affected by sterling and the shares were among the biggest Footsie fallers, down 20p at 470p. Thorn, which split from EMI last summer, fared better, adding 2.5p to 152.5p after the company launched a strategic review which may see it breaking itself up.

The insurance sector saw a fair bit of action. Commercial Union erased its losses of the day before to head the league of Footsie climbers, up 23p to 797p. General Accident added 12p to 987p in sympathy.

Laporte added 0.5p to close at 631.5p after a "strong buy" recommendation from ABN Amro Hoare Govett. The broker believes that, in the light of takeover interest in Allied Colloids, Laporte is trading on a 34 per cent discount to international speciality chemicals companies.

Readicut said it was in talks over the possible sale of its carpet division. The textiles company ended up 3.75p to 43.5p.

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