An early rally in London's equity market, prompted mainly by the view that global markets had coped well with Yamaichi's collapse, failed to hold yesterday and share prices slipped back to close with relatively modest losses. The market also had to cope with the first Green Budget delivered in Parliament by Gordon Brown, the Chancellor of the Exchequer. Some dealers had expected Mr Brown to mark his first pre-budget paper with a hatful of surprises. That expectation proved something of a damp squib, however, the only surprise coming with news that corporation tax is to be cut to 30 per cent.
Additional moves such as the abolition of advance corporation tax from April 1999 and the revisions to the public sector borrowing requirement came as no real surprise.
Mr Steve Wright, the UK strategist at BZW, said the change in tax arrangements would actually cause the Treasury to be a net gainer to the tune of £2.3 billion in revenues in the first year, and about £2 billion in subsequent years, because of the earlier collection of corporation tax. "This is really a corporation tax rise in disguise," he said.
The change in the tax system would only benefit companies from 2003, Mr Wright said.
There was little sign of reaction from shares or gilts while the chancellor was speaking. "It was a non-event as far as the market was concerned," said one trader. He said London remained transfixed with events in the Far East and the response in the US.
Although there had been some reassurance for European markets from the trends on Wall Street and in Tokyo, he warned that sentiment, at least in London, was still exceptionally fragile and that any further signals of bad news could bring renewed weakness.
There was an 100-point-plus fall on Wall Street late on Monday and a sizeable decline in Tokyo in the wake of Yamaichi's collapse. But the extent of those falls was no more than dealers in London had been expecting and caused few initial twitches in the market.
Wall Street came in firmer yesterday afternoon, the Dow adding over 20 points shortly after the opening bell, but gradually gave ground to post a near-20 point loss as London closed.
The FTSE 100 index ended another uneasy trading session 35.1 lower at 4,863.5, having swung in a 52.4 point arc. An initial decline gave way to keen support for the leaders, and the index made good progress after the Far Eastern markets closed for the day, reaching a session high of 4,917.2, up 18.6.
The feel-good factor soon disappeared, however, and share prices moved back into negative territory where they remained for the rest of the day.
The FTSE 250 fell 14.4 to 4,631.3 and the FTSE SmallCap 5.2 to 2,260.9.
