Market Outlook

FTSE 100 index on tenterhooks with UK business investment set to diminish

KPMG cut its 2019 predictions for UK economic growth from 1.6% to 1.2% on Monday – if a Brexit deal can be reached, citing the continued ambivalence surrounding Britain’s exit deal from the EU as its main concern. 

The accountancy firm giant’s chief economist Yael Selfin said that the “lack of clarity around Brexit, the disappointing data in the Eurozone, the waning stimulus in the US and a slowdown in China are making for a challenging environment”, with business investment expected to shrink by 0.2% in 2019.

The Confederation of British Industry meanwhile declared Brexit a “national emergency” and called for a no deal to be ruled out, as it recorded financial optimism falling at its fastest rate since 2008.  

0.2%

Projected reduction in UK business investment in 2019

The FTSE 100 was down 43 points at 7,165p in early trading on Monday, extending its three-day downward streak to a 2.5% fall. London’s blue-chip index had suffered its worst fall since December on 22 March, declining 150 points. 

Sterling has meanwhile perked up to $1.3186 against the dollar, helped by reports that Theresa May will put her Brexit deal to a third vote, as well as a weaker dollar.

The pound was also marginally down against the euro at 85.64p. Investors are bracing for further volatility in the pound, as the currency braces to see if Britain will leave the EU without a deal.


What’s next?

The UK Parliament is expected to hold another slew of votes on Brexit this week, including a third on Theresa May’s withdrawal deal, which if MPs approve will mean that a delay of Brexit untill the 22 May will occur. If it is rejected then a shorter delay of 12 April will be enacted.  

“The extension of the Brexit deadline was shorter than many had hoped and we still have the problem of what type of consensus deal lawmakers can rally around,” Michael Hewson, chief market analyst at CMC Markets, said. 

Brexit jitters continue to spook UK stocks, with Majestic Wines plummeting 10.5% in early trading on Monday to hit a low of 237p after the company said it would review its dividend policy as it looks to focus on its online retail business, Naked Wines. 

“The extension of the Brexit deadline was shorter than many had hoped and we still have the problem of what type of consensus deal lawmakers can rally around” - Michael Hewson, chief market analyst at CMC Markets

Other retail stocks, including British supermarket chains Tesco [TSCO], Sainsbury’s [SBRY] and Morrison’s [MRW] have been removing product ranges and lowering standards for fresh produce in preparation for Brexit, amid their market shares being squeezed by German discount stores Aldi and Lidl. 

Despite market uncertainty, a Hargreaves Lansdown survey of UK retail investors revealed a spike in investor confidence towards the UK, with the HL Investor Confidence index hitting a 10-month high in March at 80 points, up 53% from its record December low. It’s still below the 10-year average of 91 however.  

KPMG’s ‘economic outlook’ report concluded that in the long-term, regardless of the Brexit outcome, the EU will continue to be the UK’s largest trading partner due to its size and proximity.

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