Scepticism over whether last week’s inconclusive general election can really lead to a ‘soft’ Brexit and concerns over the political uncertainty the hung parliament brings, saw the pound extend its losses against the dollar and euro today.
Joshua Mahony, market analyst at IG, the online trading platform, agreed with those saying the government’s weakened position in Parliament raised pressure on it to retain access to the European single market. For example, the Tories’ potential new partners, the Democratic Unionist Party, wish to avoid a ‘hard’ border between Northern Ireland and the Irish Republic.
Nevertheless, freedom of movement would remain a key sticking point in negotiations with the EU, he believed.
‘To many it is clear that the referendum result was a vote for control over immigration, yet to do so would necessitate a “hard Brexit” and thus any hopes of a “softer Brexit” are somewhat unrealistic,’ he said.
Sterling fell further against the dollar, down 0.42% to $1.2686, and weakened to 88.38 cents against the euro. This followed a survey showing British business confidence had fallen since Thursday’s national poll, with 57% of members telling the Institute of Directors they were pessimistic about the UK economic prospects over the next 12 months.
Meanwhile, data from credit card provider Visa showed British consumers cut their spending by 0.8% in real terms last month compared to a year earlier. ‘Our index clearly shows that with rising price and stalling wage growth, more of us are starting to feel the squeeze,’ said Kevin Jenkins, Visa managing director.
Ariel Bezalel, the Citywire A-rated manager of the Jupiter Strategic Bond fund, said the election result was bad news for the UK consumer with the drop in the pound since Friday exacerbating the inflationary forces that had put consumers under pressure. ‘If you add the political uncertainty to the mix, retailers are going to feel the pinch should consumers cut back on their spending,’ he added.
In contrast to Friday, the fall in the pound did not buoy the stock market after a heavy fall in US Nasdaq-listed technology stocks on Friday over concerns that investors had become complacent about their risks, weighed down the FTSE 100, which traded 21 points, or 0.3%, lower at 7,506.
Software provider Micro Focus International (MCRO) was the biggest FTSE 100 faller, down 2.7% at £24.29, prompting similar falls from accounting software group Sage (SGE), off 2% at 683p, and medical technology company ConvaTec (CTEC), down 2.2% at 316p.
Scottish Mortgage (SMT), the country’s biggest conventional equity investment trust with big positions in most of the ‘FAAMG’ (Facebook, Apple, Amazon, Microsoft and Google owner Alphabet) highlighted for concern by analysts at Goldman Sachs, slipped 2.5% to 407.4p.
Allianz Technology Trust (ATT), down 4.6% or 48p to 995p, led a bevy of investment trust fallers in the FTSE Small Cap index, including Fidelity Japanese Values (FJV), down 2.5% at 119.7p and Aberforth Geared Income (AGIT), down 2.4% at 235.6p
Oil bet up
Energy stocks offset some of the downward pressure on the index, rising as futures traders increased their ‘long’ positions in a bet that that crude prices would rise, despite heavy production increases in the US, Nigeria and Libya.
Brent crude futures added 75 cents to $48.90 a barrel with West Texas crude futures adding 58 cents to $46.41.
Royal Dutch Shell (RDSb) was the FTSE’s top riser with a 1.9%, or 40p, gain to £21.92. BP (BP) added 1.5%, or 7.2p, to 475p.
Mitie (MTO) bucked a depressed FTSE 250 index, down 0.4% or 77 points at 19,692, as the outsourcing firm soared 10%, or 25p, to 271.85p after outlining measures to return to profitability.
The provider of pest control, cleaning, security and healthcare services reported a £42.9 million loss for the year to 31 March caused by Brexit uncertainty and rising costs.
Chief executive Phil Bentley, who moved from Centrica to take charge in December, said the company planned to save £45 million over three years by automating more its processes in human resources, finance and workforce management.