(qlmbusinessnews.com via news.sky.com– Thur, 15 Nov 2018) London, Uk – –
A series of resignations over the UK's draft agreement with the EU have created fresh uncertainty for currency and share traders.
The pound has fallen sharply while banking and house building stocks are also under pressure after a draft Brexit deal was hit by political turmoil.
Sterling was more than two cents lower against the dollar at less than $1.28 in the wake of Dominic Raab's resignation as Brexit Secretary while it was also down by two cents versus the euro, at €1.13.
In the stock market, Royal Bank of Scotland and Barclays led the fallers, dropping 7%, while big house builders such as Baratt Developments and Persimmon each slumped by 6%.
But the wider FTSE 100 was less heavily affected, with the pound's fall providing a boost to the sterling value of the top-flight's multinationals, whose earnings are largely in foreign currencies.
However, the index turned negative by mid-morning when Work and Pensions Secretary Esther McVey announced that she would follow Mr Raab in quitting the Cabinet.
The second-tier FTSE 250 Index, which has more of an exposure to the UK economy, was down by around 1%.
Chris Beauchamp, chief market analyst at IG, said: “As the steady drip of resignations hits the government, the UK's deal with the EU appears to be dead in the water already.
“Risk appetite has taken a hit across the board.”
The falls for banking stocks came after state-backed RBS revealed last month that it was putting aside £100m to guard against a “more uncertain economic outlook” ahead of Brexit.
House builders have also revealed their exposure to the uncertainty, with Taylor Wimpey saying earlier this week that there were “signs of customer caution” and that it expects sales volumes will fail to grow next year.
At the same time, house price growth has slowed sharply.
Currency markets have been in volatile mood in recent weeks amid the changing prospects for a Brexit deal.
The pound had crept above $1.30 against the dollar on Wednesday after it emerged that UK and EU officials had agreed a draft deal, with gains only muted given the difficult task of winning political backing for it.
Ratings agency Moody's has described the agreement as a positive step but warned that it was “far from the end of the process” and that its passage through Parliament was far from certain.
Colin Ellis, Moody's chief credit officer for Europe, Middle East and Africa, said: “If the UK parliament does not support the agreement then – in the absence of further developments – the EU and the UK will be heading for a no-deal Brexit by default.
“As we have said previously, that would have significant negative consequences for a range of issuers.”
Experts including the Bank of England expect a sharp shock to the economy if there is a no-deal withdrawal and the UK's independent fiscal watchdog has drawn comparisons with the impact of the three-day week in 1974.
By John-Paul Ford Rojas