By Shristi Achar A and Johann M Cherian
(Reuters) -UK shares closed higher on Wednesday, with the domestically-focussed FTSE midcap index at a two-month peak, as the government bet on tax cuts to revive its election chances, while Premier Foods (LON:PFD) surged to a nearly 13-year high.
The blue-chip FTSE 100 ended up 0.4%, while the mid-cap FTSE 250 rose 1.1% to its highest level since early January.
Finance Minister Jeremy Hunt's pre-election budget revealed tax cuts, an annual economic growth forecast of 0.8%, and he added that the Bank of England's 2% inflation target would be achieved in a few months.
"The relationship between tax cuts and growth is a lot hazier than the caricature," said Will Hobbs, head of UK multi-asset wealth at Barclays (LON:BARC) Private Bank and Wealth Management, injecting a note of caution.
Despite a one year extension on windfall levies on energy firms' profits, the sector added 1.5% and was the biggest boost to the main index as crude prices gained over 2%. [O/R]
Adding to the cheer, the investment banking and brokerage services sector advanced 0.8% as Hunt also outlined plans to reform tax-free savings accounts to boost investments into London-listed firms.
"The (reform) is a crucial step in starting to recapitalise British businesses, and make the UK listing regime the global capital of capital," Mike O’Shea, chief executive of Premier Miton Investors, said.
While stock indexes across the Group of Seven advanced economies have climbed so far this year, Britain's indexes have declined amid worries about an economic slowdown and uncertainty over the timing of interest rate cuts.
Rate-sensitive real estate companies and real estate investment trusts added 0.8% and 0.9%, respectively, as the budget outline a cut in capital gains tax on property sales.
Elsewhere, Premier Foods surged 11.5% after the Mr Kipling cakes maker reached an agreement with the trustee of its pension scheme to suspend pension deficit payments from April.
ConvaTech jumped 6.1% after the medical products and technologies firm raised its mid-term forecast for revenue growth.
British Airways (LON:ICAG) owner IAG gained 4.8% on a J.P.Morgan rating upgrade to "overweight" from "underweight".