UK midcap stocks back at Feb highs with Brexit trade deal in sight

UK shares rose on Thursday as Britain and the European Union inched closer to striking a post-Brexit trade deal, averting a chaotic separation with only seven days left for the transition period to expire.

UK shares rose on Thursday as Britain and the European Union inched closer to striking a post-Brexit trade deal, averting a chaotic separation with only seven days left for the transition period to expire. The domestically focused FTSE 250 index, considered a proxy to Brexit sentiment, jumped 0.6% to regain its February peak, while small-cap stocks surged 0.8% to a record high.

The exporter-heavy FTSE 100 rose 0.1% as a jump in sterling kept gains in check. Britain's biggest banks Lloyds Banking Group, Barclays and Natwest rose between 2% and 4.5% on hopes that a trade deal will brighten the country's economic prospects in 2021.

"The banking sector will benefit from the deal as they are the lifeblood of the British economy," said David Madden, analyst at CMC Markets. Sources in London and Brussels said the two sides were on the cusp of striking a narrow trade deal as British Prime Minister Boris Johnson held a late-night conference call with his senior ministers, and negotiators in Brussels pored over reams of legal trade texts.

"There's a lot of money waiting on the sidelines... investors have been pouring money into the chest anticipating a no-deal scenario," Madden said. Johnson and EU Commission President Ursula von der Leyen are expected to hold a news conference later on Thursday morning, the BBC reported.

Brexit uncertainties, tight restrictions due to the COVID-19 and a new variant of the virus have led to domestic markets underperforming European peers this year. The FTSE 100 is down almost 14% this year, on track for its worst year since 2008.

UK markets will close early on Thursday and remain closed for Christmas on Friday and Boxing Day on Monday.