The UK 100 or FTSE 100 has declined by around 14% year to date. However, in the last three months, this blue-chip index has gained almost 12%. Despite the recent ramp up, British equities have lagged other major stock markets. Analysts believe British stock will catch up in 2021.

The Brexit trade deal being signed between the UK and the EU removes a four-an-a-half year uncertainty overhang on British stocks. However, once the UK exits the bloc on December 31, the new trade deal will come into force and there could be ups and downs as the two regions adjust to the new norms. Progress in the rollout of vaccines will give the British economy the right backdrop to make a strong economic rebound in 2021, giving a major lift to the UK 100.

The US NFP is one of the most important reports that causes volatility in markets around the world. The US has been reporting a slowdown in jobs growth in recent months, and the growth is likely to decelerate further in the coming period, especially due to a record surge in covid-19 cases. The market expects an addition of just 190,000 jobs in December.

The British economy reported a contraction for the eighth straight month, shrinking 8.2% year-over-year in October due to lower economic activity amid the pandemic. Analysts are expecting a further decline in the UK’s GDP due to the imposition of stricter restrictions to contain the spread of the new variant of the virus. GDP is likely to contract 16% in November.

In October, the UK reported its first trade deficit since March, recording a gap of £1.74 billion versus a surplus of £0.61 billion in the earlier month. Exports declined 3.6% to £47.99 billion due to lower shipments of goods, while imports rose 1.2% to £49.72 billion. The deficit is expected to ease to £1.2 billion in November.

Consumer prices in Britain rose 0.3% year-over-year in November, down from 0.7% in October. The biggest upward contribution came from games, toys, and hobbies during the month. For December, the annualised inflation rate is likely to increase to 0.5%.

The Bank of England announced plans to hold interest rates at a record low of 0.1%, and to maintain its bond buying at £875 billion. However, the UK’s central bank is expected to lower interest rates in view of the new strain of the covid-19 virus and the significant rise in infections. The lower interest rate environment will support the UK 100 index.

Even with the Brexit trade deal signed, there will be significant pressure on the UK government to approve a referendum on Scotland’s independence, especially with the Scottish parliamentary elections due in May.