House builders have led a rally in UK-focused shares as traders bet that the likelihood of a “no-deal” Brexit is fading – and that the chances that Brexit might not happen at all have increased.
JP Morgan, the US investment bank, now sees the possibility of crashing out without an agreement at 10%, down from 20%, with the chances of “no Brexit” up from 20% to 40%.
It came after a series of parliamentary defeats for Theresa May cast new light on her plans.
House builders – which have been hit by a property market slowdown amid economic uncertainty in recent months – led the way on the FTSE 100 on Wednesday.
Berkeley Group rose 7%, with Persimmon and Barratt Developments up 5%, and Taylor Wimpey adding about 4%.
UK-focused banks Royal Bank of Scotland and Lloyds Banking Group also made gains – each up by around 2%.
Shares in airlines climbed too, with easyJet, British Airways owner International Airlines Group and Dublin-listed Ryanair each up by about 2%.
Meanwhile, the pound partially recovered having fallen the day before to its lowest level against the dollar since June 2017.
Sterling was up by around half a cent against the US dollar to just short of $1.28.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the recovery for UK-focused stocks came after many had seen their values held back, even as they enjoy improving profit performances, because of the potential of a major shock to the economy looming.
“There is quite a lot of upside from a lot of these stocks if we do get a reasonable, orderly Brexit,” he said.
“We have seen these price swings in both directions, depending on what’s going on with the Brexit negotiations.”
Banks and house builders saw large falls last month after a series of cabinet resignations after the prime minister reached agreement with the EU on a draft deal.
The rally on Wednesday comes a day after a Commons vote that appeared to give MPs more of a say on Brexit if Theresa May’s plan is defeated next week.
JP Morgan economist Malcolm Barr wrote in a note to clients: “The UK now appears to have the option of revoking unilaterally and taking a period of time of its own choosing to decide what happens next.”
The wider FTSE 100, largely made up of international businesses, was lower on Wednesday – by about 1% – amid worries over the US economy and doubts about hopes of an end to the trade war between Washington and Beijing.