The FTSE 100 (^FTSE) closed higher on Tuesday as incoming Chancellor John Healey pledged fiscal control and defence stocks posted strong gains.
The FTSE 100 finished up 61.15 points, or 0.6%, at 10,585.91, while the FTSE 250 rose 211.69 points, or 0.9%, to close at 23,752.40.
The AIM All-Share also advanced, gaining 8.24 points, or 1.1%, to close at 766.13, reflecting broad-based optimism across London markets.
European markets similarly ended the session in positive territory, with Paris’s CAC 40 up 0.3% and Frankfurt’s DAX 40 closing 0.7% higher.
Sterling weakened against the dollar on Tuesday afternoon, falling to 1.3375 US dollars from 1.3418 dollars at Monday’s equities close.
New Prime Minister Andy Burnham used his first Cabinet meeting to declare he would lead a “cost-of-living Government”, announcing an £850 million tax cut on electricity bills.
Mr Burnham told ministers they must give people “a sense that help is coming”, vowing to always “show how we’re going to pay” for policies targeting hard-pressed households.
AJ Bell analyst Russ Mould noted that “Andy Burnham is now confirmed as the nation’s seventh prime minister in 10 years, with John Healey as our ninth Chancellor of the Exchequer in the same time span.”
Mould added that “it is understandable that Burnham desires to plan for the long-term and, to use his words, make politics work better and personally act as a circuit-breaker after the recent torrid pace of change in Downing Street.”
Addressing Treasury staff for the first time, Mr Healey said he wants to build “new hope” for Britain, promising fiscal control would be his “first duty” and the “bedrock of economic stability.”
Healey also pledged that Labour would usher in a “new era of devolution and public control”, telling civil servants he would deliver “principles not political buzzwords” in his approach to the role.
Defence stocks rose sharply following Mr Healey’s appointment, with Babcock International ending 7.6% higher and BAE Systems (BA.L) finishing up 1.8% on the session.
Mr Healey had previously served as defence secretary under Sir Keir Starmer, resigning after judging that defence investment announced by the former prime minister was not sizeable enough.
Geopolitical tensions added further pressure to energy markets, as Iran stepped up attacks in the Middle East two weeks after its war with the US resumed, with sirens sounding in Bahrain and Jordan intercepting two waves of missiles and drones.
Iran’s Houthi allies declared they would blockade Saudi Arabia’s ports, compounding fears over global energy supply following the Islamic republic’s earlier blockade of the Strait of Hormuz.
Brent crude climbed to 91.36 dollars a barrel on Tuesday afternoon from 88.07 dollars late on Monday, reflecting the escalating regional instability.
Gold surged to 4,077.93 dollars an ounce from 4,011.08 dollars at Monday’s close, as investors sought safe-haven assets amid geopolitical uncertainty.
Miners benefited from the commodity rally, with Antofagasta ending 5.8% higher, Fresnillo climbing 4.4%, and Endeavour Mining finishing up 3.8%.
On the FTSE 250, shares in Mitie jumped 39% after it agreed to a recommended £3.1 billion cash takeover by rival outsourcer OCS Group at 221.6 pence per share, representing a 45% premium to Monday’s closing price.
Russ Mould said the Mitie deal was another sign that merger and acquisition activity in the UK remains strong despite the summer holiday season.
Segro ended down 3.4% after rejecting another offer from Prologis, which valued the FTSE 100 property company at 993 pence per share, or £13.5 billion, a 9.7% premium to its adjusted net asset value.
Prologis argued that Segro’s defence relies on “unrealistic risk assessments and assumptions to arrive at the various (net asset value) uplifts and earnings projections” in its rejection of the approach.
Ocado shares rose 3.1% after the company announced a new customer fulfilment centre agreement with an unnamed fast-growing European retailer, with the facility due to go live in financial 2028.
On AIM, IQE shares surged 30% after the company raised its revenue guidance, reporting first-half revenue of at least £64 million and now expecting full-year revenue growth in excess of 30% on-year.
IQE chief executive Jutta Meier said: “Our long-established leadership in (indium phosphide) and other key material systems means we are critically embedded in supply chains enabling industry trends that will continue to deliver further progress in (the second half).”
London Stock Exchange Group (LSEG) fell 2.4% despite unveiling plans for LSE 24, a new weekday 24-hour trading venue designed to give global investors greater flexibility across time zones.
UK inflation data is due at 7am on Wednesday, with trading statements expected from Fresnillo, Greencore, JD Wetherspoon, and Liontrust Asset Management also on the corporate calendar.