By Shubham Batra and Nikhil Sharma

(Reuters) -The UK’s FTSE 100 fell to an over two-month low on Wednesday, dragged down by the healthcare sector, while midcap stocks got a lift even as the latest UK budget came with the biggest tax increases in three decades.

The blue-chip FTSE 100 fell 0.7% to its lowest level since August 9, weighed down by AstraZeneca and GSK.

The midcap FTSE 250 rose 0.3% as market players deemed the new Labour government’s first UK budget to be less punitive on businesses than many had previously feared.

Small cap stocks got an even bigger boost. The FTSE AIM index rose about 4%, logging its biggest one-day rally since April 2020.

Finance minister Rachel Reeves said she would raise taxes by 40 billion pounds ($52 billion) a year, much of it paid by businesses and the wealthy, and she blamed the Conservatives for leaving her Labour Party with a “black hole” in the budget.

“By 2029 fewer people will drift into higher tax bands now that thresholds will be uprated with inflation once again. This tax tweak, coupled with the rise in the minimum wage, will eventually put more money into consumers’ pockets,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Pub stocks enjoyed a lift after Reeves announced a cut to duties on alcoholic drinks in pubs, and extended England’s business rates relief for retail and hospitality. Marstons rose 3.4%.

Betting firm Entain jumped 8.6% after Reeves left taxes on the sector unchanged.

AstraZeneca fell 2.8% after the drugmaker said its China president is under investigation and is cooperating with Chinese authorities.

GSK dropped 3% after the drugmaker warned that its vaccine sales would fall this year, after weaker-than-expected sales for its respiratory syncytial virus and shingles vaccines in the third quarter.

Spirits maker Diageo fell 2.6% after its Italian peer Campari tumbled on missing analysts’ third-quarter earnings expectations.

In contrast, Standard Chartered rose 4% on plans to double investment in its wealth unit while paring back retail banking, as it lifted performance targets and said it will go further in reshaping the bank to try and meet those goals.

(Reporting by Shubham Batra in Bengaluru; Editing by Rashmi Aich, William Maclean)