UK stocks ‘Santa rally’ buried by Fed hike and Brexit uncertainty

The FTSE 100 sunk to its lowest level since August 2016 and Bank of England blames Brexit uncertainty for keeping interest rate rises on hold.

The FTSE 100 slumped to a 28-month low following the Federal Reserve raising rates for the fourth time this year, with investors growing skittish as US monetary policy tightens amid a global economic slowdown that buried 'Santa rally' witnessed earlier this month.

Unlike its US counterpart the Bank of England (BoE) opted to leave interest rates unchanged at 0.75%, with the central bank warning that Brexit uncertainty is having a real impact on the UK economy, hindering growth and eroding stock market gains.

Smooth Brexit essential for BoE rate rise in 2019

Despite the BoE eager to raise interest rates and bring inflation below 2%, the UK central bank opted for a pragmatic approach in light of recent global stock sell-offs in a bid to relieve pressure on equity markets that are nearing breaking point.

‘It is not surprising that the Bank of England’s monetary policy committee voted unanimously to keep the Bank rate at 0.75%,’ Senior economist at PwC Mike Jakeman said. ‘The Bank’s preferred direction for interest rates is upward, but there is little evidence that the economy could support a further rate hike at present.’

Jakeman argued that there is ‘growing evidence’ that the UK economy has weakened significantly since the summer, with consumer price inflation slowing amid a retail sector that is struggling in the run-up to Christmas rather than thriving.

"Ultimately though, it will be Brexit that determines the Bank’s next move - a fact acknowledged by the committee, which said its monetary policy response could be in 'either direction',’ Jakeman added.

‘On the assumption of a reasonably smooth Brexit, we would expect the Bank to raise interest rates once in 2019, likely later in the year.’

Worst hit UK stocks in pre-Christmas rout

Among the casualties on Thursday is UK cruise operator Carnival, which is down by more than 8% as of 4:34pm, with the company heading towards a two-year low despite a strong fourth quarter that exceeded analysts’ expectations.

British online supermarket Ocado also had a tough day’s trading, down nearly 3% to £7.55 levels as the London market nears its close. But overall, the supermarket has had a strong year, with it seeing some of the best returns from the UK stock market in 2018.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

See an opportunity to trade?

Go long or short on more than 17,000 markets with IG.

Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Updated
Change

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Sell
Buy
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
China 300
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.