UK equity market review: Progress on Brexit transition agreement

March 2018

UK share prices generally fell during March amid expectations of tightening monetary policy and concerns over rising US protectionism. The UK and EU managed to reach an accord on “a large part” of the terms of the Brexit transition; the issue of Northern Ireland, however, remained unresolved.

  • The UK’s retail sector remained under pressure
  • The post-Brexit outlook for the UK financial services sector remained in question
  • An increase in interest rates is widely expected in May

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UK share prices generally fell during March amid expectations of tightening monetary policy and concerns over rising US protectionism. The FTSE 100 Index dropped by 2.4% over March, while the FTSE 250 Index fell by 1.2%.

“The US is the UK’s largest single trading partner, comprising one-fifth of all exports”

Following the decision of the US to impose tariffs on steel and aluminium imports, the UK Government said it disagreed with the move, warning that the UK’s “longstanding and special relationship with the US” would not prevent UK from criticising its decision. The US is the UK’s largest single trading partner, comprising one-fifth of all exports totalling over £100 billion a year. Later in the month, the US decided to exempt certain countries – including the UK, along with the rest of the EU member states – until at least the beginning of May. 

The UK and EU managed to reach an accord on “a large part” of the terms of the Brexit transition; the issue of Northern Ireland, however, remained unresolved. Chief EU negotiator Michel Barnier acknowledged the progress as “a decisive step”, but said it did not represent “the end of the road”. European Council President Donald Tusk urged the UK to deliver a “specific and realistic solution to avoid a hard border” in Ireland, warning, “As long as the UK doesn’t present such a solution, it is very difficult to imagine substantive progress in Brexit negotiations.” He also issued a cautionary note for the UK’s financial services sector, advising, “We should be all be clear that… when it comes to financial services, life will be different after Brexit”. 

The UK’s retail sector remained under pressure in March as Mothercare and Carpetright warned that they were at risk of breaching the terms of their loan agreements. Next unveiled a decline in annual profits of almost 8% during the month that was partly caused by weakness in the clothing market and described 2017 as “the most challenging year we have faced for 25 years”. Elsewhere, furniture retailer DFS announced a steep drop in interim pre-tax profits. According to the Confederation of British Industry (CBI), sales in March posted their weakest performance since April 2013 as shoppers were deterred by unusually wintry weather. Sales volumes registered their first drop since October 2017. Looking ahead, although sales volumes are expected to rise in April, the pace of any increase is likely to be “subdued”.


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