May’s clear run fails to lift the market clouds

Sterling rose against the euro yesterday after the path was cleared for UK home secretary Theresa May to be appointed prime minister, as S&P Global Ratings sounded its concerns over the “the vulnerability” of the British housing market.

“This is a small sterling positive to the extent that it reduces some of the uncertainty.

"But it doesn’t change the fundamental picture,” said Sam Lynton-Brown, a currency strategist at BNP Paribas in London.

Sterling rose slightly against the euro to 85p but remains sharply down from 76.5p on June 23, a fall of 11%.

It also rose slightly to over $1.29 but is still 12% down against the dollar since the vote.

Shares in RBS, the Ulster Bank owner, rallied over 4%, paring its losses since June 23 to a drop of 30%.

Lloyds Bank shares also gained but are also down 24%, since the vote.

S&P Global Ratings said the effect of the vote on the real economy “became more visible” on the suspension of redemptions last week by UK property funds “to avoid fire sales of the underlying commercial real-estate assets”.

“Also concerning is the vulnerability of the housing market. UK households have a high level of indebtedness, which stood at 132% of their annual income in the first quarter.

"With the market experiencing strong price increases in the past four years, affordability has deteriorated,” the ratings firm said.

“At least now you know who will be leading the UK”, said Petr Krpata, a currency strategist at ING in London, after Andrea Leadsom, May’s only surviving rival, stepped out of the Tory and premiership leadership race.

“The battle for the leadership could have been protracted” which would have meant “additional uncertainty for the already battered pound,” he said. n Additional reporting: Bloomberg