UK-focused stocks up as markets see chance of 'no-deal' Brexit fade

5 December 2018, 14:31 | Updated: 5 December 2018, 18:01

House builders have led a rally in UK-focused shares as traders bet that the likelihood of a "no-deal" Brexit is fading - and that the chances that Brexit might not happen at all have increased.

JP Morgan, the US investment bank, now sees the possibility of crashing out without an agreement at 10%, down from 20%, with the chances of "no Brexit" up from 20% to 40%.

It came after a series of parliamentary defeats for Theresa May cast new light on her plans.

House builders - which have been hit by a property market slowdown amid economic uncertainty in recent months - led the way on the FTSE 100 on Wednesday.

Persimmon rose 7%, with Berkeley Group up 6%, Barratt Developments up 5%, and Taylor Wimpey adding 4%.

UK-focused banks Royal Bank of Scotland and Lloyds Banking Group also made gains - up by 2% and 1%.

Shares in airlines climbed too, with easyJet, British Airways owner International Airlines Group and Dublin-listed Ryanair all ahead.

However, the wider FTSE 100 finished more than 100 points, or 1.4%, lower - with investors in many of its multi-national giants worrying about continued friction between the US and China and even signs of a possible US recession.

Meanwhile, the pound partially recovered having fallen the day before to its lowest level against the dollar since June 2017, though by the stock market close it was little changed at just above $1.27 against the US dollar.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the recovery for UK-focused stocks came after many had seen their values held back, even as they enjoy improving profit performances, because of the potential of a major shock to the economy looming.

He said: "Housebuilding stocks in particular have risen in value as the market perceives greater parliamentary control over the Brexit process as likely to lead to a softer withdrawal from the EU.

"Lloyds and RBS are also having a good day on the back of sunnier expectations for the UK economy.

"We wouldn't bet the house on gains being sustained though.

"There's still a wide range of outcomes from the parliamentary process, and more twists and turns in the tale before we have a definitive direction for Brexit."

Banks and house builders saw large falls last month after a series of cabinet resignations after the prime minister reached agreement with the EU on a draft deal.

The rally on Wednesday comes a day after a Commons vote that appeared to give MPs more of a say on Brexit if Theresa May's plan is defeated next week.

JP Morgan economist Malcolm Barr wrote in a note to clients: "The UK now appears to have the option of revoking unilaterally and taking a period of time of its own choosing to decide what happens next."