(Correcting the number of MPs who voted in the referendum.)
LONDON (Alliance News) - London stocks closed mixed on Thursday as the day was dominated by the UK court ruling on the government's powers to trigger the Brexit process, and as the Bank of England hiked its inflation forecasts, both of which helped the pound to gain some ground back against the dollar.
On Thursday morning, the British High Court ruled Prime Minister Theresa May will have to seek parliamentary approval before triggering Article 50, which will fire the starting pistol on the two-year process of the UK leaving the European Union.
Three senior judges ruled May does not have power to use royal prerogative in her Brexit strategy and campaigners who brought the legal challenge said the PM must now set out her negotiating strategy to MPs.
The UK government immediately said it would appeal the ruling. If the ruling is not overturned by the Supreme Court, or at a potential further appeal to the European Court of Justice, the ruling could plunge the government's Brexit plans into crisis.
Berenberg senior UK economist Kallum Pickering said the ruling makes "serious delays" and the potential for a so-called 'soft' Brexit, where the UK would retain access to the EU single market, likely. The possibility the ruling leads to no Brexit happening is unlikely, "but not implausible", Pickering added.
In the referendum, 480 of the 650 MPs in Parliament said they would vote to remain in the EU, compared to 159 who said they would vote to leave. 11 MPs were undeclared. That notionally gives the Remain camp a majority of at least 310 based on past voting, illustrating the potential challenge PM May's government could face by having to run the Brexit deal by Parliament.
Joshua Mahony, market analyst at IG, said the ruling was a "significant blow" for May and casts major uncertainty over the prospect for Article 50 to be triggered in March 2017, the target the PM has set.
"Coming at a time when uncertainty is rife, today's ruling throws yet another spanner into the works," Mahony said, adding "the increasingly cloudy pathway to exiting the EU will further hinder investment decision-making within UK-based firms."
That ruling was announced two hours before the Bank of England's policymakers voted unanimously to keep interest rates and asset purchases unchanged. The central bank lifted its 2016 inflation forecast to 1.3% from 1.2% and upped its UK gross domestic product forecast for the year to 2.2% from 2.0%.
The bank's inflation forecasts and GDP assumptions for 2017 were also raised, but while its 2018 inflation forecast was lifted, the Bank trimmed its GDP expectations for 2018 to 1.5% from 1.8%.
Bank Governor Mark Carney said monetary policy could respond "in either direction", and the rate-setting Monetary Policy Committee said "there are limits to the extent to which above-target inflation can be tolerated", adding it is "monitoring closely the evolution of inflation expectations".
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the minutes from the BoE's Monetary Police Committee showed more concern about inflation and indicated the bank "will not necessarily step in to stimulate the economy again if growth slows".
Berenberg's Pickering said he does not expect any further monetary policy easing from the Bank in the medium term. But he noted, as evidenced by the court ruling, "Brexit creates significant protracted uncertainty".
"That households and firms could begin to respond more sensitively to such uncertainty tilts the balance of probability towards looser rather than tighter policy while Brexit uncertainty looms large," the Berenberg economist added.
The ruling and the BoE inflation forecasts sent the pound up against the dollar to USD1.2441 at the London equities close, compared to USD1.2304 at the close on Wednesday. It hit a high of USD1.2494 just after the BoE announcement. The euro was trading at USD1.1093 at the close, down from USD1.1115 at the end of London trading on Wednesday.
Connor Campbell, financial analyst at Spreadex, said while not scaling the heights against the dollar seen when the BoE cut rates in August, the pound was still having "a pretty great day".
The rally for the pound hit the FTSE 100 index, populated by blue-chip stocks with more international exposure, while giving a boost to the mid-cap FTSE 250, where the constituents have a greater domestic focus.
The FTSE 100 index closed down 0.8%, or 54.91 points, at 6,790.51, while the FTSE 250 finished up 0.7%, or 118.45 points, at 17,581.91. The AIM All-Share closed down 0.8%, or 6.49 points, at 809.84.
The BATS UK 100 index closed down 0.8%, or 96.28 points, at 11,498.16, the BATS 250 ended up 0.9%, or 144.85 points, at 15,981.91, and the BATS Small Companies closed down 0.1%, or 15.20 points, at 10,766.01.
In Europe, the CAC 40 in Paris closed down 0.1% and the DAX 30 in Frankfurt closed down 0.4%.
In the FTSE 100, Randgold Resources ended as the worst performer, down 6.2%, as it took a hit from the gold price falling. Gold was trading at USD1,298.96 at the London equities close, down from the USD1,305.01 seen at Wednesday's close. Fellow miners Fresnillo, down 3.9%, and Polymetal International and Anglo American, both down 2.7%, were also among the biggest fallers.
Among those faring better in the blue-chip index was Wm Morrison Supermarkets, which closed up 1.9%. The grocer delivered its fourth consecutive quarter of like-for-like sales growth, boosted by a strong Halloween, and expressed confidence in its outlook despite a competitive grocery market. Rival J Sainsbury ended up 2.5%.
Company updates drove activity in the FTSE 250. Topping the gainers was Shawbrook Group, the specialist lender, which reported surging loan growth and shrugged off any Brexit-related concerns. Shares ended up 15%.
Next up was Lancashire Holdings, the specialist insurer, which closed up 7.3%. The group declared an unexpectedly high special dividend for the third quarter and said its pretax profit rose 30% despite difficult market conditions for the group.
Brent oil, having had a big influence on proceedings on Wednesday following US crude oil reserve numbers, was broadly flat at USD46.33 at the London close, compared to USD46.51 at Wednesday's close.
On Wall Street at the London close, the Dow 30 was up 0.1%, while the S&P 500 was flat, and Nasdaq Composite was down 0.4%.
On Friday, the key US nonfarm payrolls figures will come at 1230 GMT, with consensus expecting 175,000 jobs added in October. US unemployment, hourly earnings and the trade balance will all come at the same time, while the Baker Hughes oil rig count will come at 1700 GMT.
In Europe, services purchasing managers' index data are due from Italy, France, and Germany ahead of the Eurozone PMI figures at 0900 GMT. Eurozone producer prices will follow at 1000 GMT.
On the corporate front on Friday, bookmaker Paddy Power Betfair and Irish property investor Kennedy Wilson Europe Real Estate will publish trading updates. Low-cost carrier easyJet and British Airways owner International Consolidated Airlines Group will publish October traffic statistics.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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