Progress made on Brexit but a long way to go

December 11, 2017

The first round of Brexit negotiations appeared to be concluded last week as Theresa May agreed solutions for the “divorce bill”, citizens’ rights and the contentious Irish border. A deal was almost scuppered early in the week as the wording around the future relationship between Northern Ireland, the Republic of Ireland and the rest of the UK was not acceptable to the DUP.  Fortunately, by the end of the week an agreement was reached. This will allow the UK and EU to move onto phase two of negotiations that will include the critical issue of trade. Events last week continue to illustrate the sensitivity of the Pound on developments in the political landscape. After recently reaching a two month high, following the initial negotiations the Pound lost over 1% against the US dollar before recovering 0.7% on the news of a deal.


Good news for the UK economy came out last week. Official figures showed that factories’ output expanded for the sixth month in a row in October, primarily driven by sharp increases in car production. Importantly increased production has been a result of greater international demand, which in turn has improved total exports. Annual growth in manufacturing output hit 3.9% in October, the highest rate since December 2016 and significantly faster than the rest of the economy. However, weaker data was seen in the construction sector, where activity slowed by 1.7% in October. This surprised economists, who were anticipating a 0.4% increase.


In the US, the S&P 500 index reached a record closing level on Friday as solid jobs growth encouraged investors to continue buying stocks. US non-farm payrolls rose by 228,000 last month, slightly more than was expected. This helped keep the overall unemployment rate the current low of 4.1%. However, wage growth continues to confuse commentators, after posting a lacklustre 2.5% growth over the 12 months to October. Given the low level of unemployment and accelerating economy, the majority of economist are expecting that faster wage growth will begin to be seen, as more companies compete for fewer prospective employees. However, low wage growth has been a theme across developed market economies with many citing advances in technology, competition from emerging markets and low productivity gains as the primary reasons.


Index Open Close Change % Change
FTSE 100 7300 7393 93 1.27%
S&P 500 2642 2651 9 0.34%
Dax 12861 13153 292 2.27%
Cac 40 5316 5399 83 1.56%
Nikkei 225 22819 22811 -8 -0.04%
UK 10 Year Gilt Yield 1.23 1.28 0.05 4.07%