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FTSE 100 up 0.2%, FTSE 250 adds 0.7%

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Telecom Plus sees FY profits above estimates

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Essentra up on plan to spin off filter business

Oct 3 (Reuters) - UK's main stock indexes ended higher for a second straight session on Monday, boosted by commodity-linked shares and Telecom Plus, with investors digesting the British government's reversal of tax cuts in its new fiscal policy.

The blue-chip FTSE 100 and the FTSE 250 mid-cap indexes rose 0.2% and 0.7%, respectively, marking a positive start to the fourth quarter.

The British government reversed plans to cut the highest rate of income tax after their "mini-budget" sparked turmoil in financial markets last week and prompted rating agency S&P Global to cut its outlook for the nation on Friday to "negative", sending the mid-cap index into its steepest weekly decline since March.

Yields on British government bonds slipped, while the sterling jumped 1.5% to its pre mini-budget high and capping gains on the FTSE 100.

"While welcome, it alone won't ease market concerns as it only represents a small portion of the unfunded tax cuts that were needlessly announced before next month's budget and OBR forecasts. The government has a long way to go to restore trust and confidence," said Craig Erlam, senior market analyst, UK & EMEA, at OANDA.

Investors have warned that the government still needs to show that it can afford its plans and that UK assets are "not out of the woods yet".

"Anytime you have a government who's basically changing their mind, it's very hard to plan and you have to have a risk premium on UK assets because of the uncertainty," said Patrick Armstrong, chief investment officer at Plurimi Wealth.

The core issue is still that prices are high, consumer confidence is low, with the central bank not expected to turn dovish any time soon, he said.

Data showed British manufacturing output fell for a third month in September and orders declined for a fourth consecutive month, data showed.

BP Plc and Shell gained 2.2% and 2.4%, respectively, tracking a jump in crude prices as OPEC+ considered cutting output by more than 1 million barrels a day.

Miners, retailers and homebuilders added between 1.5% and 3% after declining sharply in recent weeks.

Essentra Plc advanced 15.3% after it announced the sale of its filters business and appointed Scott Fawcett, managing director of its components division, its new chief executive.

Telecom Plus PLC surged 24% after the multi-utility supplier gave an upbeat profit outlook. (Reporting by Johann M Cherian and Devik Jain in Bengaluru; Editing by Savio D'Souza and Bernadette Baum)