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Markets recover as Tories take charge

Britain’s new Prime Minister David Cameron and his coalition government took charge Wednesday, boosted by a recovering London stock market and pound, although data showed unemployment claims at a 16-year high.


New finance minister George Osborne’s biggest task will be to bring down a record British deficit caused by the global economic crisis.

London’s FTSE 100 index of leading shares dipped 0.12 percent to stand at 5,327.55 points in morning trade, pulling back from recent sharp losses as Conservative leader Cameron began his new job as prime minister.

On Tuesday his party, which won the most votes and seats in last week’s general election but not a majority, struck a coalition deal with the third-placed Liberal Democrats that ended 13 years of Labour rule.

“Markets had feared a negative start, but as the dawn of a new political era takes place, there appears to be a collective sigh of relief that we have a clearer way forward,” ODL Securities trader Owen Ireland said on Wednesday.

In foreign exchange trade, the pound rose to 1.4997 dollars from 1.4956 late in New York on Tuesday. It also gained to 1.1819 euros from 1.1812.

“Sterling has strengthened against the US dollar and the euro on this stabilisation of the UK political situation,” said City Index analyst Joshua Raymond.

Later Wednesday, attention will turn to the Bank of England, set to publish its latest inflation and growth forecasts for Britain.

The BoE on Monday decided to freeze British interest rates awaiting the formation of a new government.

The bank’s policymakers voted to keep its key lending rate at a record-low 0.50 percent for the 14th month in a row as they sought to balance unexpectedly high inflation with the need to support Britain’s fragile economic recovery.

Britain’s economy grew by a weaker than expected 0.2 percent in the first quarter of 2010.

However this is expected to be revised upward to 0.3 percent following strong manufacturing data for March, the Office for National Statistics (ONS) had said on Tuesday.

Britain emerged from a record-length recession in the final three months of 2009 with growth of 0.4 percent after six straight quarters of negative output.

In a stark reminder of what lies ahead for Britain, ONS data published on Wednesday showed the nation’s jobless total had increased by 53,000 in the three months to the end of March.

At 2.51 million people, the total jobless figure stands at the highest level since 1994. The country’s unemployment rate managed to hold steady at 8.0 percent in March, the ONS added.

Analysts though warned of further job losses ahead.

“Significant job cuts in the public sector are looming as part of the major squeeze that has to occur on government expenditure,” IHS Global Insight economist Howard Archer said Wednesday.

“Meanwhile, in the near term at least, many firms are likely to meet any increase in business through making greater use of the workers they have already, and they are likely to be reluctant to take on any more staff until they are really convinced that sustained improvement in business is likely.”

Britain borrowed a record 152.8 billion pounds in the 12 months to March.

That was 65.9 billion pounds higher than in the same period of 2008/09, as a record recession slammed the country’s tax revenues and the government was forced to prop up failing banks.