The FTSE opened weaker this morning following a drop in equities in the US and Asia as concerns over the strength of the global economic recovery continue to weigh on investors.

The UK emergency budget was delivered yesterday and if you were to look at sterling and gilts it would seem that the market is looking favourably towards the measures announced to rein in public finances. Sterling is around 0.6% stronger against the US dollar at $1.4895 and the yield demanded on six-month and two-year gilts has come down slightly. A preliminary assessment by Fitch Ratings has given the budget the thumbs up, stating that it 'sets out an ambitious deficit reduction path that, if delivered upon, will materially strengthen confidence in UK public finances and its 'AAA' status.'

However, significant challenges remain for the UK government in implementing its cuts. Almost half of the £32 billion deficit reduction target will come from a cut in public sector spending, such as wage freezes and more stringent welfare payments, something that may cause friction among Liberal Democrat supporters. The other half will have to come off the back of the strength in the UK economy, a significant risk if the economy turns out to be weaker than the government anticipated. The UK does not have the luxury of turning to an export-led recovery since Europe, the UK's main trading partner, is in no position to ramp up its purchasing at this juncture. At the same time the strength of the US economic recovery has recently come under question.

By 11.45am (London time) the FTSE 100 traded 24.86 points (-0.48%) lower at 5222.12 and the broader FTSE 250 had retreated 41.13 points (-0.42%) to 9897.60.

The UK government will also want to see the BoE continue with its loose monetary policy and keep interest rates low to help offset the tighter fiscal measures that will be imposed. Indeed this seems to be the case based on the BoE minutes released today. I would like to point out that we are beginning to see a divide amongst committee members in their views of when to start lifting interest rates. Most noticeably Andrew Sentance has held the most hawkish view, being the sole voter among the eight committee members to vote for an increase in the interest rate by 25 basis points. In my view, prematurely lifting interest rates could damage productivity in the corporate sector, which would undermine the government's push to stimulate business by reducing the corporate tax level.

There is another argument for keeping the interest rate the same. According to Roger Bootle of Deloitte's 'This downside economic risk reinforces my view that interest rates are set to remain at or near current levels for the duration of this parliament, and that on inflation the main risk is to the downside. With many countries now competing in the austerity stakes, deflation is a serious risk.'

Meanwhile, most UK banks were in the red this morning, with the exception of Lloyds and RBS. According to Bloomberg, the proposed banking sector levy is equivalent to 7% of the £28 billion combined profit expected by the FTSE 100 listed banks in 2011. The impact will not have the same effect on all banks nevertheless; Lloyds rallied 3.53% this morning after Goldman Sachs reported that it would be the least negatively impacted. Royal Bank of Scotland also gained 1.78% while HSBC, Barclays and Standard Chartered lost between 0.1% and 0.8%.

Later this afternoon, US mortgage applications are scheduled for release along with the new home sales and retail sales data. The Fed will also announce its latest interest rate decision this evening.