Sterling fell sharply against the US dollar and euro during July as the prospect of a no-deal Brexit began to appear increasingly possible. Despite the uncertainty, UK share prices over the month, driven higher by expectations that the pound’s weakness will flatter the earnings of companies that generate a significant proportion of their earnings overseas.
- The Government stepped up no-deal preparations
- UK retailers suffered a “summer slump” in June
- Business groups urged the Government to avoid a “disorderly” Brexit
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Sterling fell sharply against the US dollar and euro during July as the prospect of a no-deal Brexit began to appear increasingly possible. Despite the uncertainty, UK share prices over the month, driven higher by expectations that the pound’s weakness will flatter the earnings of companies that generate a significant proportion of their earnings overseas. During July, the FTSE 100 Index rose by 2.2% and the FTSE 250 Index – representing medium-sized UK companies – climbed by 1.1%.
“The risk of a no-deal Brexit edged closer”
The risk of a no-deal Brexit edged closer in July following the news that – as expected – Boris Johnson had defeated Jeremy Hunt to become the new Conservative Party leader, and the UK’s new Prime Minister. Having won the contest, Mr Johnson began to step up preparations for the growing likelihood that the UK might quit the EU on 31 October without a deal in place. Chief Brexit negotiator for the EU Michel Barnier tweeted that he was looking forward to working “constructively” with Mr Johnson “to facilitate the ratification of the withdrawal agreement and achieve an orderly Brexit”. Meanwhile, US President Donald Trump suggested that discussions between the UK and US over a “very substantial” trade deal have already begun, but gave no further details.
In its quarterly Economic Survey, the British Chambers of Commerce (BCC) found that underlying economic conditions in the UK stagnated during the second quarter of 2019, dampened by “relentless” uncertainty over Brexit, rising business costs and tougher global trading conditions. Looking ahead, the BCC urged the UK Government to focus on “avoiding a messy and disorderly exit from the EU”.
The British Retail Consortium (BRC) reported a “summer slump” for retailers in June as footfall fell at an annualised rate of 2.9%. Within the retailing sector, online fashion retailer Asos issued a profit warning during July, having previously warned on profits in December 2018. Elsewhere, having already delayed the release of its full-year earnings earlier in the month, Sports Direct eventually revealed that it was facing a tax charge from Belgium of €674 million, alongside the news that House of Fraser’s financial problems are “nothing short of terminal”. As a result, the company was not in a position to forecast its future financial performance. Supermarket chain Sainsbury’s reported a decline in first-quarter sales that was attributed to a “tough trading environment”.
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