UK stocks end higher on financials, retailers boost

By Bansari Mayur Kamdar and Johann M Cherian

(Reuters) -British stock indexes ended higher on Tuesday boosted from financials and retailers as investors digested Liz Truss's appointment as new prime minister against the background of surging prices and looming recession.

The blue-chip FTSE 100 index edged up 0.2% to close higher for a third straight session, with miner Glencore providing the best performer.

Truss faces one of the most daunting set of challenges for an incoming leader in post-War history led by soaring energy bills, a looming recession and industrial strife.

Her plan to revive growth through tax cuts, while also potentially providing around 100 billion pounds ($116 billion) for energy, has rattled financial markets, prompting investors to dump the pound and government bonds in recent weeks.

Banks gained 0.6%, led by a 4.1% rise in shares of Lloyds Banking Group tracking UK gilt yields higher as markets focused on the extra borrowing Truss may need to cut household energy bills.

Some investors are alarmed that tax cuts promised by Truss could aggravate Britain's inflation problem, speeding up the Bank of England's interest rate hikes and worsening a recession that the BoE expects to start this year and end only in 2024.

Traders are expecting a 74.6% chance of a 75-basis-point hike by the BoE at its meeting next week.

"At the moment, at least, the market is tending to overlook the downside consequence of the recession and are focussing on the fact that interest rates are of a higher potential for banks and financial institutions to make more money," said Stuart Cole, head macro economist at Equiti Capital UK.

"The spending plans that it appears the new UK Government will implement will effectively provide a fiscal boost which the BoE can leverage off to tighten policy harder and faster."

Truss is planning a 40 billion pound ($46.22 billion) support package for businesses to help them cope with rising energy costs, Bloomberg News reported.

Retailers climbed 2.7% to log their best one-day performance since Aug 10.

Capping gains on the commodity-heavy FTSE 100, oil majors BP and Shell fell 2.3% and 1.7%, respectively, tracking weaker crude prices. [O/R]

High-end housebuilder Berkeley Group Holdings rose 3.6% after saying underlying sales in the first four months until August were ahead of year-ago numbers.

(Reporting by Johann M Cherian and Bansari Mayur Kamdar in Bengaluru; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)