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Pound gives up gains after bleak outlook for post-Brexit Britain warning

Published 15/07/2016

The FTSE 100 was down 13 points at 6,640
The FTSE 100 was down 13 points at 6,640

The pound gave up gains on Friday after the Bank of England's chief economist Andy Haldane spoke out in favour of heavy-hitting stimulus in August and warned of a bleak outlook for a post-Brexit Britain.

Sterling was down 1.01% against the dollar at 1.31. Against the euro, the pound slumped 0.57% to 1.19.

The pound had rallied to a two-week high on Thursday, touching 1.34 US dollars, following the Bank of England's shock decision to hold interest rates at 0.5%.

However, Mr Haldane said that he favoured a "sledgehammer" approach to stabilising the economy as he warned that unemployment could rise and the economy slow down in the wake of Britain's decision to quit the European Union.

"This monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly," he said.

It is now widely expected that interest rates will be cut to 0.25% in August alongside a possible extension of quantitative easing.

To compound matters, UK construction output fell by more than expected in May, adding to concerns that the economy is in line for a sharp slowdown following the vote to exit the European Union. Output contracted 2.1% compared with April and 1.9% year on year, according to figures from the Office for National Statistics.

The FTSE 100 clawed back from negative territory earlier in the day to close up 14.77 points, or 0.22%, at 6,669 points.

Travel firms had led stock markets across Europe lower on Friday morning as investors reacted to a terror attack in the French city of Nice in which at least 84 people were killed.

EasyJet ended the day down 2.85% at 1,140p, British Airways owner IAG slumped 0.92% to 422.1p and tour operator TUI fell 1.25% to 960.3p.

Thomas Cook saw a sharp 4.20% drop to 63.8p while Flybe fell 3.14% to 38.5p.

The CAC 40 in France closed down 0.3% and the DAX 30 in Frankfurt ended the day flat.

Tony Cross, market analyst at Trustnet Direct, said: "The FTSE 100 may have finished Friday's session at highs for the day, but the gains are limited to a dozen points or so and last night's terror attack in France is certainly casting something of a shadow over the market.

"The week may have started on an upbeat tone with that early appointment of a new Prime Minister being seen as paving the way for finally getting the Brexit proceedings under way. However, any positivity stemming from this may end up looking rather premature as in the last few hours we've seen reports that Article 50 won't be triggered until a UK-wide approach can be agreed."

Shares in transport giant FirstGroup also took a tumble, falling 2.14% to 100p, after reporting a dip in revenue in the first quarter. Sales across the Aberdeen-based firm fell 1.4%, largely due to poor trading in the US, where it operates Greyhound coaches. The firm also said that it is too early to say what impact the Brexit vote will have on the company.

Intertek and Ashtead were the day's best performers in London's top tier, rising 1.67% and 1.77% respectively, both riding higher after broker price target upgrades.

The UK weighted FTSE 250 was down 60.77 points at 16,727.

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