Britain’s top share index was 0.5 percent higher late Wednesday morning, lifted by gains in banks and retailers but moves were muted with investors holding fire ahead of the budget.
By 1035 GMT the FTSE 100 was 18.62 points higher at 4,006.08 points after inching 3.4 points, or 0.1 percent, lower in the previous session.
The blue-chip index is down 10.4 percent this year, but up 14.8 percent since its trough set on March 9.
Banks added most points to the index, recovering some of the losses the previous session after U.S. Treasury Secretary Timothy Geithner indicated most banks have sufficient reserves to protect against possible losses.
HSBC, Standard Chartered, Royal Bank of Scotland, Barclays and Lloyds Banking Group gained 0.3-4.7 percent.
“Geithner’s comments about improved conditions in the U.S. have galvanised sentiment on UK and European banks… but we can’t say we’re out of the woods,” said Jeremy Batstone-Carr, strategist at Charles Stanley.
Britain’s finance minister, Alistair Darling, is set to deliver the gloomiest budget in a generation at 1130 GMT, as government borrowing soars to a record high and the economy shrinks at its fastest pace since World War Two.
“All eyes are on (the budget), I don’t expect there to be any surprises but it hinges on credibility and the market is very sceptical,” said Philip Lawlor, chief portfolio strategist at Nomura.
Trading was thin ahead of the budget. The index had seen 34.5 percent of the 90-day moving average traded compared to over 50 percent for the FTSEurofirst 300.
Jobless data released on Wednesday underlined the extent to which the economy is suffering, with the ILO unemployment rate rising to 6.7 percent from 6.5 percent.
Data which showed a 52 percent annual drop in mortgage lending and government borrowing at a record high piled on the gloom.
Retail stocks shrugged off the bleak data as a forecast-beating update sent Carphone Warehouse 7.5 percent higher while Citi raised price targets across the sector and upgraded Next, up 6.7 percent, to “buy” from “hold”.
Insurers were also higher, benefiting from the slightly improved sentiment for the financial sector.
Old Mutual, Legal & General Standard Life and Aviva gained 1.1-6.4 percent.
The Bank of England minutes of its April 8-9 Monetary Policy Committee showed all nine members voted to keep rates on hold at 0.5 percent.
Seven FTSE 100 companies, including BAE Systems, Centrica, Reed Elsevier, Cadbury fell after trading ex-dividend.