Shares up after ‘fiscal cliff’ deal

The fiscal cliff agreement, which was sealed just hours before world markets were due to return from the New Year holiday, triggered a rise of 1.5 per cent in the FTSE 100 Index, up 93 points to 5990. Hong Kong’s Hang Seng index had earlier rallied by more than two per cent to its highest level in 18 months.

Economists feared that, without action by Congress, the tax increases and spending cuts that technically took effect on New Year’s Day would cause unemployment to surge and send the US economy back into recession.

In an unprecedented pre-dawn vote in the House of Representatives, the deal neutralised middle-class tax increases and delayed spending cuts for two months, while raising tax rates on incomes over 400,000 US dollars (£247,000) for individuals and 450,000 US dollars (£278,000) for couples.

The Bill’s passage on a 257-167 vote was a triumph for President Barack Obama after his re-election in November on the back of a pledge to impose higher taxes on the wealthy. He said the measures were “just one step in the broader effort to strengthen the economy”.

The London market has been in limbo in recent sessions as traders pondered the implications of America failing to reach a compromise to avoid the so-called fiscal cliff.

Cantor Index analyst David Buik said: “There was never any chance of there being anything worse than a fudged agreement on the proposed budget, including taxation increases for the better-off.

“The ramifications of no agreement were not worth considering. As it stands, the prevarication may have cost the US 0.5 per cent of GDP for 2013. No agreement at all would have cost four per cent of GDP.”