UK equity market review: Election dominates sentiment

November in the UK was largely taken up by the impending General Election. Having dominated the headlines for many months, Brexit relinquished the spotlight as the different parties’ manifestos focused on domestic policy issues. Nevertheless, with less than two months to go until the new deadline of 31 January 2020, Brexit remained an unwelcome spectre at the feast. 

  • UK economic growth slowed to its lowest rate since 2010
  • Retail sales fell in the run-up to the Christmas trading period
  • Credit ratings agencies queried political parties’ spending promises

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November in the UK was largely taken up by the impending General Election. Having dominated the headlines for many months, Brexit relinquished the spotlight as the different parties’ manifestos focused on domestic policy issues. Nevertheless, with less than two months to go until the new deadline of 31 January 2020, Brexit remained an unwelcome spectre at the feast. The Bank of England (BoE)  believes that Boris Johnson’s new Brexit Withdrawal Agreement has helped to reduce the likelihood of a no-deal Brexit, but also warned: “it typically takes several years for new trade deals to be negotiated and implemented”. Meanwhile, the spending plans outlined by both the Conservative and Labour parties would stoke uncertainties surrounding the UK’s fiscal outlook, according to credit ratings agency Fitch. During November, the FTSE 100 Index rose by 4.1%, while the FTSE 250 Index climbed by 4%.

“It typically takes several years for new trade deals to be negotiated and implemented” (BoE)

The UK’s economic growth lost momentum during the third quarter of 2019. Having expanded at an annualised rate of 1.3% over the second quarter, the UK economy slowed to 1%, achieving its lowest growth rate since 2010. On a quarterly basis, the economy grew by 0.3% following a 0.2% contraction in the second quarter, and avoided slipping into recession.

Retail sales staged an unexpected fall during October, posting a 0.1% month-on-month decline following a flat September and achieving their poorest monthly performance since April 2018. The news stoked concerns about the outlook for the retail sector in the build-up to the important Christmas trading period. High-street retailer M&S reported a 17% drop in first-half pre-tax profits and cut its interim dividend by 40%. M&S lost its place in the FTSE 100 Index in September and was consigned to the FTSE 250 Index. Supermarket retailer Sainsbury’s reported a sharp drop in first-half profits and advised that “retail markets remain highly competitive and the consumer outlook remains uncertain”; elsewhere, baby product retailer Mothercare went into administration during the month.

Credit ratings agency Moody’s changed its outlook on the UK from “stable” to “negative” in November, highlighting the risk that the UK’s “Aa2” credit rating could face a downgrade, citing deterioration in the UK’s fiscal and economic strength. Moody’s joined Fitch in querying political parties’ pledges to increase spending without a “clear plan” of how to finance it, warning that Brexit had led to “paralysis” in policymaking.


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