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FTSE surges higher as Sunak announces windfall tax on energy firms

·Business Reporter, Yahoo Finance UK
·4-min read
Share price information is displayed on screens at the London Stock Exchange offices. The FTSE 100 was flat on Thursday.
The FTSE 100 reacted with a shrug to a £15bn package from the UK government to support households struggling with the cost of living. Photo: Jack Taylor/Getty Images

European stock markets were trading in positive territory on Thursday as traders digested chancellor Rishi Sunak’s announcement for fresh support for UK households to battle rising energy bills.

The FTSE 100 (^FTSE) was 0.6% higher by the end of the session after a muted start in London, while the CAC (^FCHI) rose 1.9% in Paris, and the DAX (^GDAXI) was 1.7% higher in Frankfurt.

It came as the finance minister announced a U-turn on a controversial windfall tax on energy giants to help fund a package to alleviate the strain on household energy bills.

Sunak announced that more than 8 million households on the lowest income will get £650 to help them with rising energy bills. This support will be worth £5bn.

He said the current cost of living situation was "simply unacceptable" and that the government would never allow people to be left destitute.

In addition to this, he revealed that 8 million pensioner households will get a one-off payment of £300, as well as a one-off £150 payment for people receiving disability benefits. People in this group will also get the £650 for those in lowest income.

"As Chancellor Rishi Sunak perfected his U-turn on a windfall tax, the share prices of BP and Shell also looped lower, before climbing back up, as investors shrugged off its impact given that it is expected to be a short lived hit," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

"It may mean dividends are pushed lower temporarily, but given that tax will reduce if companies invest more, it’s likely to mean an acceleration of investment by BP and Shell, a strategy which will be welcomed by many investors who see environmental progress and not just shareholder pay-outs as crucial for their long term growth prospects.

"Putting hundreds of pounds back in the purses of hard pressed consumers has also helped lift shares in retailers, which have been sliding over the feared repercussions of the cost-of-living crisis."

Read more: Rishi Sunak unveils £15bn aid to help UK households struggling with rising energy bills

Across the pond, the S&P 500 (^GSPC) rose 1.7% and the tech-heavy Nasdaq (^IXIC) was 2.1% higher. The Dow Jones (^DJI) climbed 1.5% by the time of the European close.

It came as new data showed than the American economy shrank 1.5% in the first three months of the year – a slight downgrade on previous estimates.

The contraction was caused in part by a wider trade gap, with the nation spending more on imports than other countries did on its exports. A slower restocking of goods in stores and warehouses also had a part to play.

Read more: Sunak's windfall tax fails to dent energy companies' share price

Meanwhile, separate data showed applications for US unemployment insurance declined last week by more than forecast,

According to the Labour Department, initial unemployment claims fell by 8,000 to 210,000 in the week ended 21 May.

Watch: US may have 'technical' recession, but won't 'feel' like it -analyst

The mood on Wall Street, however, was spurred on by minutes from the Federal Reserve's early May meeting which showed a majority backing half-percentage-point rate hikes in June and July.

Victoria Scholar, head of investment at Interactive Investor, said: “The Fed’s minutes were hawkish but as expected with policymakers sounding optimistic and in control.

“The minutes helped support risk-on sentiment in the markets with indices closing in the green and the dollar falling close to one-month lows thanks to its upbeat assessment of the US economy as well as talk of ‘expedited’ tightening which could leave room for flexibility and even a possible pause later this year.”

Read more: Why the energy price cap is going up when oil firms are making billions in profit

Asian markets were mixed overnight despite another drop in COVID cases in China, where lockdowns had threatened to undermine recent economic support measures.

The Nikkei (^N225) fell 0.3% in Tokyo while the Hang Seng (^HSI) also ended 0.3% lower in Hong Kong. The Shanghai Composite (000001.SS) managed to push 0.5% higher on the day.

Elsewhere, Russia's central bank slashed interest rates for the third time in just over a month as it seeks to prevent a rapid rally in the rouble.

The Bank of Russia lowered its benchmark rate from 14% to 11% at a meeting that was only announced on Wednesday.

It also said it "holds open the prospect of a key rate reduction at its upcoming meeting".

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