London close: FTSE 100 suffers worst year since 2008

After a year many of us would rather forget, dominated by the coronavirus pandemic, restrictions and the Brexit saga, stocks fell on Thursday, with the top-flight index suffering its worst annual performance since the financial crisis in 2008.

With more than three quarters of England now under the toughest Tier 4 Covid restrictions and questions remaining over how the UK will fare next year after Brexit, the FTSE 100 ended down 1.5% at 6,460.52. That leaves the index 14.3% lower for the year.

The domestically-focused FTSE 250 closed 1.1% weaker at 20,488.30, leaving it down just over 6% for the year.

Meanwhile, sterling was up 0.3% against the dollar at 1.3660, hitting its best level since May 2018, having rallied sharply on Wednesday after British lawmakers approved the Brexit trade deal.

IG market analyst Joshua Mahony said the value and cyclical nature of the UK markets has ensured significant underperformance compared with their US counterparts.

"Travel and housing are at the forefront of today’s losses, with worries over an extended period of economic restrictions heightening the clear uncertainty of exactly how hard the UK economy will suffer on its exit from the EU. The government’s Brexit deal does allay many of the fears over a potential breakdown at the border, yet questions remain over how hard the services sector will suffer from a deal which pays little attention to an area which makes up a whopping 80% of the UK economy.

"With 2020 behind us, traders will be looking forward to a period of increasing stability and prosperity. Despite ongoing upheaval and suffering, the swift actions taken on a governmental and central bank level have helped avoid what could have been a year filled with bankruptcies and economic collapse. Instead, UK businesses are looking towards Spring as a target to blossom once again."

Mahony added that while short-term fears over Covid restrictions and Brexit implications will understandably ensure volatility over the months to come, the prospect of a reopening effort in the second quarter should provide the basis for a much better 2021 for UK stocks.

In equity markets, British Airways owner IAG and InterContinental Hotels were both lower as optimism over vaccines and potentially brighter prospects for the travel and leisure sector faded.

Meanwhile, exporters such as Diageo, Johnson Matthey and British American Tobacco were hit by the firmer pound.

Investment platform AJ Bell slumped after founder Andy Bell pocketed nearly £17m from the sale of 3.6m shares at 460p each.

Outside the FTSE 350, Countrywide surged after it accepted a sweetened takeover offer from rival Connells.