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Sterling hits new seven-month high against the US dollar

By Marianne Curphey

Meanwhile, gloomy ONS figures weigh on the FTSE 100 index while retailers Ted Baker and Mothercare suffer further falls

News that the UK economy is showing little sign of recovery weighed on the stock market on Tuesday December 10, pushing indices lower. On the political front, the pound rose against the dollar to touch 1.319, a new seven month high, amid expectations that Boris Johnson will lead his Conservative party to election victory on Thursday. It later dropped back to 1.3174.

The latest figures from the Office for National Statistics (ONS) showed that growth in the UK economy had stalled in the three months to October and there had been a contraction in the manufacturing and construction industries. GDP growth remained at zero, with only the services sector showing any signs of improvement.

The FTSE 100 index of leading shares slipped a little, down 0.28 per cent to 7,213.76 and the FTSE 250 showed similar form, dropping by 0.68 per cent to 20,781.09.

In early evening trading Sterling rose against the US dollar, rising to 1.3173, a rise of 0.24 per cent, while against the euro it was up at 1.1889 or 0.14 per cent rise. This reflects a belief that the Conservative party will win an outright majority in the General Election in the UK on Thursday. Any uncertainty about the outcome is likely to trigger a fall in sterling as a hung Parliament might increase the risk of the UK leaving the EU without a deal.

Richard Falkenhäll, senior FX strategist at SEB, the leading Nordic corporate bank, said there were “two reasons why a Conservative majority in Parliament after the election favours the pound; 1) it would create a stable political situation and reduce the risk that the Labour party will have any political influence. 2) it provides clarity on what will happen to Brexit.”

However, he said going forward, there could be further weakness in sterling, because the current withdrawal deal with the EU no longer prevents a hard Brexit if negotiations on the future relationship and a new trade agreement with the EU fail or are delayed.

“The uncertainty this would create is likely to weigh on the UK economy and the pound in 2020 just like it did this year,” he said. “Essentially, this suggests that the strengthening of the pound in the past months and any additional appreciation on the back of a Conservative majority in the elections can turn out to be quite short-lived.”

On the markets, there was more bad news for clothing retailer Ted Baker, whose shares fell further today as the company announced its chairman and chief executive were leaving. Shares have fallen by more than 75 per cent since January, and the company has issued four profit warnings amid a tough retail environment. Shares fell 13.41 per cent to close at 346.00 this evening. Mothercare shares were also down as it revealed a slide in sales.

However, the slowdown in the UK economy didn’t stop pub chain JD Wetherspoon from announcing further plans for expansion. It said it was planning to create 10,000 new jobs over the next four years. Its shares dipped slightly, to 1,500, a fall of 0.53 per cent.

Elsewhere, the Euro Stoxx 50 dropped by 1.2 per cent in early trading, before recovering a little to finish the day at 3,640.33, a fall of 0.87 per cent.

Bitcoin was down 1.25 per cent to 5,549.37 in early evening trading

Crude oil was 59.17 in early evening trading.

Gold was up slightly, finishing the day at 1,468.20, a rise of 0.23 per cent.

The Wall Street Journal reported that US and Chinese negotiators might succeed in delaying the next tranche of tariffs which are due on 15 December. The news was not enough to lift the Dow, which lost 30 points, or 0.1 per cent, to 27,878. The S&P was down 0.18 in morning trading, to 3,130.19.

FURTHER READING: NHS funding takes centre stage in UK General Election campaign

FURTHER READING: Ted Baker investigating £20m stock over valuation

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