The FTSE 100 Index hit a new all-time high in October, reaching 7,556.24 points during the month. However, the spike was caused primarily by wider enthusiasm towards global economic developments than by confidence in domestic factors. Progress in Brexit negotiations remained glacial, undermining sentiment towards the UK.
- The FTSE 100 Index rose by 1.6% in October
- S&P maintained its “AA” rating and “negative” outlook towards the UK
- Questions intensified over the potential impact of Brexit on the UK’s long-term growth
“The OECD… urged the UK to maintain close economic ties with the EU”
The FTSE 100 Index hit a new all-time high in October, reaching 7,556.24 points during the month. However, the spike was caused primarily by wider enthusiasm towards global economic developments than by confidence in domestic factors. Over October as a whole the FTSE 100 Index rose by 1.6%, while the FTSE 250 Index climbed by 1.8%.
Deputy Governor of the Bank of England (BoE) Sam Woods urged the UK and EU to reach consensus on a Brexit transition agreement by Christmas and warned that failure could spur some companies to activate emergency measures. Meanwhile, the Organisation for Economic Co-operation & Development (OECD) expressed concern that Brexit was generating “serious economic uncertainties that could stifle growth for years to come” and urged the UK to maintain close economic ties with the EU.
Credit ratings agency Standard & Poor’s (S&P) maintained its “AA” credit rating and “negative” outlook for the UK, but raised questions over a lack of progress in Brexit discussions and the strength of Prime Minister Theresa May’s leadership. In particular, S&P highlighted “the continued institutional and economic uncertainty surrounding the Brexit negotiations and the UK’s future relationship with its largest market for goods and services”, warning that it regards the possibility of a “disorderly Brexit as increasingly certain”.
Although the manufacturing sector continued to strengthen during the third quarter, wider UK economic expansion was dampened by a lacklustre contribution from the services sector. The British Chambers of Commerce blamed “political uncertainty, currency fluctuations and the vagaries of the Brexit process” for holding back business growth.
Concerns over the outlook for consumer confidence were exacerbated by the news that the annualised rate of consumer price inflation had reached 3% in September . Retail sales posted an annualised increase of 1.9% on a like-for-like basis in September; this rise was, however, largely attributable to higher prices. The British Retail Consortium warned that spending has been focused on “essential purchases” rather than “big-ticket” discretionary items. Meanwhile, during October, department store operator Debenhams revealed a 44% drop in full-year profits.
Barclays announced disappointing third-quarter earnings that were affected by poor performance from its investment banking division. During October, the Bank of England unveiled an updated edition of its “Purple Book”. This outlines the measures that banks should take to ensure that taxpayers are shielded from the impact of a banking crisis or collapse.