UKX FTSE 100 Index

By Sara Sjolin and Carla Mozee, MarketWatch

U.K. retail sales leap; Sky shares fall as 21st Century Fox strikes Disney deal

U.K. blue-chips fell by the most in two weeks Thursday, as traders reacted to a defeat for the government's Brexit bill. The setback for British Prime Minister Theresa May is seen as potentially opening the way to a softer U.K. exit from the European Union.

Stocks remained lower after the Bank of England left its benchmark interest rate unchanged, as expected. Ahead of that, data showed a jump in monthly British retail sales.

What markets are doing: The FTSE 100 index fell 0.7% to close at 7,448.12, the largest percentage drop since Nov. 30, according to FactSet data, as utility and consumer-goods shares lost the most. But the basic materials, telecom and tech sectors gained ground. On Wednesday, the index fell 0.1% (http://www.marketwatch.com/story/ftse-100-wavers-around-5-week-high-with-uk-jobs-update-on-deck-2017-12-13).

The pound traded at $1.3441, up from $1.3419 late Wednesday. Against the euro, the pound traded hands at EUR1.1412 as the shared currency fell against most of its rivals. Sterling late Wednesday bought EUR1.1347.

The 10-year gilt yield turned lower as prices rose. The yield fell 4 basis points to 1.174%, according to Tradeweb.

What's driving markets: Brexit was a major focus for Thursday's trade after May's government late Wednesday was defeated in a key parliamentary vote on legislation for the U.K. divorce from the EU.

The U.K.'s lower house voted to amend the Brexit bill to give members of parliament the power to reject the final divorce deal struck with Brussels. The government had warned that the measure could jeopardize a smooth exit from the EU in March 2019.

The vote--which was an amendment to May's flagship Brexit bill--came after a rebellion of 11 members of her own Conservative Party, and is seen as a potential route to a softer Brexit.

The setback for the government comes just as EU leaders--including May--meet in Brussels through Friday for a summit where Brexit features high on the agenda. The group is expected to give the green light for divorce talks to move onto the second phase (http://www.marketwatch.com/story/breakthrough-on-brexit-terms-opens-way-to-next-phase-of-talks-2017-12-08).

May in Brussels on Thursday reportedly said she was "disappointed" with the U.K. legislation defeat but that Britain remains on course to exit from the European Union in 2019.

Central bank day arrives: The BOE in a 9-0 vote left its key interest rate at 0.5% (http://www.marketwatch.com/story/bank-of-england-holds-key-rate-at-05-in-unanimous-vote-2017-12-14), but the bank did flag concerns with the British economy. "The recent news in the macroeconomic data has been mixed and relatively limited," it said in a statement. "Domestically, some activity indicators suggest GDP growth in Q4 might be slightly softer than in Q3."

The European Central Bank left its monetary policy unchanged (http://www.marketwatch.com/story/ecb-leaves-rates-at-record-low-reiterates-dovish-guidance-2017-12-14), as widely anticipated, but the ECB's inflation projections fell short of what some had expected.

Read:MarketWatch's recap of the ECB press conference (http://blogs.marketwatch.com/thetell/2017/12/14/watch-here-for-ecb-hints-to-the-unwinding-of-qe-live-blog/)

What are strategists saying: "As this Brexit-related uncertainty is almost certainly here to stay, I expect the [BOE] to proceed cautiously from here. Policy makers will naturally be keen to raise rates as fast as the economy allows, if only to provide some firepower when the next economic downturn arrives," Ben Brettell, senior economist at Hargreaves Lansdown, in a note.

"But with domestic inflationary pressures thin on the ground and Brexit casting its customary shadow, there's no real imperative to move for some time. Markets are tentatively pricing in a further rise towards the second half of next year," he said.

"Whilst signs of long-awaited progress have recently supported the pound, Brexit headlines remain a risk given the potential for contention, delays, and renewed concerns over the strength of PM May's leadership. This will remain the case as attention turns to discussing trade and a transition period," said Alexandra Russell-Oliver, currency markets analyst at Caxton FX.

What's new in economics: The pound hit an intraday high of $1.3467 after the Office for National Statistics said November retail sales rose 1.1% month-over-month, (http://www.marketwatch.com/story/black-friday-helps-boost-uk-retail-sales-2017-12-14) outstripping expectations of 0.4% in a FactSet survey of analysts. Customers picking up household appliances and other goods during Black Friday events helped bolster sales, said the ONS.

The report wrapped up a busy week of U.K. government economic data. This week, the ONS said Britons' wages adjusted for inflation (http://www.marketwatch.com/story/uk-wages-fall-again-in-ongoing-consumer-squeeze-2017-12-13) fell 0.4% in October, the eight consecutive month of declines. Consumer price inflation hit a 3.1% annual rate (http://www.marketwatch.com/story/uk-inflation-hits-almost-6-year-high-2017-12-12) in November, the highest since March 2012.

BOE Gov. Mark Carney's letter to U.K. finance minister Philip Hammond explaining why inflation is more than 1% above the bank's 2% target will be released in February, alongside minutes from the bank's policy meeting and its Quarterly Inflation Report.

Stock movers: Banks, which are sensitive to interest-rate developments, finished lower Thursday. HSBC Holdings PLC (HSBA.LN) (HSBA.LN) fell 1.6% as did Lloyds Banking Group PLC (LLOY.LN)(LLOY.LN). Standard Chartered PLC (STAN.LN) dropped 1.9%. Barclays PLC (BCS) (BCS) lost 0.5% and Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) was 1.1% lower.

Sky PLC (SKY.LN) fell 1.9% after the broadcaster's largest shareholder, 21st Century Fox Inc. (FOX), agreed to sell most of its assets to Walt Disney Co. (DIS) in a deal that valued at about $52.4 billion (http://www.marketwatch.com/story/disney-to-buy-21st-century-fox-in-a-deal-valued-at-524-billion-2017-12-14).

In a statement, 21st Century Fox said it "remains committed to completing its proposed acquisition of the shares in Sky it does not own, and anticipates that the acquisition of Sky will close by June 30, 2018."

Shares of retailers were largely lower even after the strong U.K. sales report. Marks and Spencer shares (MKS.LN) fell 0.6% and Next PLC (NXT.LN) lost 1.3%. Associated British Foods PLC (ABF.LN), which runs fast-fashion company Primark, fell 0.5%. But DIY retailer Kingfisher PLC (KGF.LN) turned higher and rose 0.4%.

Lonmin PLC (LMI.LN) jumped 20% on the midcap FTSE 250 after South Africa's Sibanye-Stillwater (SGL.JO) said it'll buy the UK.-listed struggling miner (http://www.marketwatch.com/story/lonmin-agrees-to-takeover-by-sibanye-stillwater-2017-12-14) for about GBP285 million ($382.83 million).

Capita PLC (CPI.LN) slid 12% on the FTSE 250 after a trading update (http://www.marketwatch.com/story/capita-sees-2017-in-line-bids-wont-add-to-profit-2017-12-14).

The FTSE 250 closed 0.3% lower at 20,006.27.

(END) Dow Jones Newswires

December 14, 2017 12:43 ET (17:43 GMT)

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