Energy leads UK shares higher after finance minister trims spending plans

March 26 (Reuters) - British equities closed higher on Wednesday, buoyed by rising energy stocks, after finance minister Rachel Reeves pushed back government spending plans in a long-anticipated budget update.

Both the blue-chip FTSE 100 .FTSE and the FTSE 250 index .FTMC gained 0.3%.

Facing a weak economy that threatened her fiscal targets, Reeves trimmed the British government's spending plans, giving some reassurance to investors. However, Britain's budget watchdog halved its forecast for economic growth this year, and hiked forecasts for public borrowing and inflation.

"Reeve's self-imposed, 'non-negotiable' fiscal rules could be a millstone round the neck of economic growth," said Caroline Shaw, multi asset portfolio manager at Fidelity International.

"Sticking to manifesto promises has left the government hamstrung in its efforts to generate growth potential".

The FTSE 100 pared early gains as Reeves spoke, but recovered ground later in the session.

Separate data showed British inflation slowed by more than expected in February, falling from 3.0% in January to 2.8%, offering consumers a brief respite. However, economists warned that rising energy prices would push inflation up again soon.

On the day, energy was the best performing sector, .FTNMX601010 up 2%, as oil prices advanced. O/R

Shell SHEL.L was among the top gainers on the blue-chip index, up 2.4%. North Sea oil and gas group Ithaca Energy ITH.L gained 9.6% after announcing restructuring plans and forecasting higher 2025 production.

British bond investors cheered Reeves' decision to cut spending plans, with the Debt Management Office set to sell 299 billion pounds in gilts, below forecasts, but they warned that persistent weak economic growth could eventually necessitate tax hikes.

Utilities .FTUB6510, often traded as a bond proxy, were up 1.3%.

Among other stocks, Ocado Group OCDO.L led gains in the midcap index, up 16.3%, after J.P.Morgan upgraded the online supermarket and technology firm rating to "overweight" from "neutral".

On the flipside, Vistry VTYV.L fell 7.3% as the homebuilder skipped a final dividend after profit slump.

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