Austerity budget stings markets

The British austerity budget hit the pound and gilts on Thursday, with stocks suffering worldwide on the glum economic outlook and the prospect of painfully high interest rates to curb inflation.

Britain unveiled a painful budget with £55 billion of tax hikes and spending cuts despite confirming its economy was already in recession. But the measures didn't reassure British markets, with the pound falling and government borrowing costs rising. Losses on London stocks deepened, before later easing. The pound was down around one per cent to $1.1799 in afternoon trading. London's blue-chip FTSE 100 index was down 0.5 per cent. Traders fear the budget will worsen Britain's cost-of-living crisis after inflation spiked to a 1981 peak of 11.1 per cent, and the government confirmed that the British economy was already in a recession that could last two years. — afp