The market has interpreted the defeat of the government’s EU withdrawal bill as a sign that Brexit may be delayed or not happen at all, and sent the value of UK domestic shares higher.
Last night (January 15) the Prime Minister faced a landslide defeat as her Brexit deal with the EU was rejected by MPs with 432 votes to 202.
The FTSE 100 has been 0.17 per cent lower since it opened this morning (16 January) but the shares of some companies exposed to the UK domestic economy, such as the retailer Next and Lloyds Banking Group, were up more than one per cent on yesterday’s closing price.
Sterling also rose by 0.05 per cent to $1.287 in the aftermath of the vote, after declining by more than 1 per cent earlier in the day.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The pound has become the market’s Brexit barometer, and it’s been a volatile night as currency markets digest proceedings in Westminster
"Sterling gained ground following the vote, but only recovered ground it lost earlier in the day.
"Markets think a softer Brexit may start to take shape now the vote has failed, as parliament gains greater control of the process.
"This is a change in dynamic, as previously government failures have heightened expectations of a hard Brexit, and have weighed sterling down."
Domestically focused shares tend to perform better than international earning shares when sterling is rising in value, this is because the more expensive sterling is relative to other currencies, the less valuable overseas earnings achieved by companies are.
Eric Lonergan, a fund manager at M&G Investments said: "I think ongoing Brexit uncertainty acting as a drag on UK growth and depressing UK interest rates is accepted and likely. The market implications are therefore not particularly significant."
david.thorpe@ft.com
