BT keeps its optimism in the face of Government cuts

BT said Government contracts made up around 10 per cent of group revenues but it was confident it could work to find savings. Last week Cable & Wireless Worldwide said it had been hit by a slowdown in the sector.

BT chief executive Ian Livingston said after the company reported higher first-quarter yesterday that the business's robustness and diversity meant it was not talking about a profit warning.

The Government is cutting spending by 6bn in an attempt to bring down the record budget deficit.

Mr Livingston said BT was in talks with the Government over spending plans. "We were surprised about Cable & Wireless' comments so early. I don't know if they have other factors and bigger factors. We're comfortable with our numbers and that's why we reiterated them today,"he added.

The comments helped to boost sentiment towards the firm, as it continues with its recovery following two major profit warnings due to problems at its Global Services division, which provides IT services to multinational companies.

Morgan Stanley analyst Nick Delfas welcomed the comments on Government spending and applauded the "excellent cash management."

BT posted a six per cent rise in adjusted core earnings, slightly better than expected, and revealed strong cash generation after taking almost 300m of operating costs out of the business. The savings mean BT is already ahead with its plan to cut 900m in the year.

Britain's biggest fixed-line telecoms provider said revenues were down four percent to 5bn, in line with forecasts, as the company continued its turnaround.