By Andrew Manners of Citywire

Tuesday was quite a day for the markets. Prime Minister Teresa May came clean on her Brexit ambitions, saying there would be no room for the UK in the single market.

However sterling, which had slumped in anticipation of such ‘Hard Brexit’ news, had its best day in years when May said any final deal would be put to Parliament, offering a chance for opponents to have a say on the matter.

Earlier in the day there was full evidence of how sterling’s weakness since the referendum has pushed up input prices. Official figures showed inflation rose far quicker than expected with the CPI rising 1.6% during 2016, beating market expectations of a 1.4% increase.

So what does that mean for the UK stock market? The FTSE 100 index, whose constituents are so dependent on overseas earnings, pulled back in reaction to the pound’s advance and the index dropped around 1.5% to end a 14 day winning streak.

There can be no denying that the UK now finds itself in a tight spot

So much for the immediate reaction. In the longer term, the direction of the market will depend not so much on what May wants from Brexit as on what deal she ends up with.

‘In terms of market reaction… there will be some comfort taken from [May] wanting a tariff-free deal, even if we’re not in the single market,’ Marc Ostwald of ADM Investor Services remarked.

However a free trade deal appears a long shot, while other obstacles in Parliament and the courts loom on the horizon.

Other analysts such as Shilen Shah at Investec Wealth & Investment, are worried about inflation, which he believes could bite into consumer demand this year – something which could weigh on the more domestically-oriented members of the FTSE 250.

As Viktor Nossek, director of research at WisdomTree puts it: ‘There can be no denying that the UK now finds itself in a tight spot. While some inflation is healthy … the UK is facing “bad inflation” caused by a tumbling pound and rising costs on the supply side rather than surging demand.’

Analysts will be closely watching Bank of England governor Mark Carney, who yesterday hinted that interest rates could go up to take the heat of inflation or could be cut if growth faltered. He has also expressed worries about how much debt consumers are taking on.

For all May’s clarity yesterday, uncertainty seems set to reign for some time as Brexit takes shape.

This article is independently written by Citywire and not subject to editorial oversight by Blackrock