The FTSE 100 smashed through the 8,500 barrier for the first time in its history today as the blue chip index powered to a new all-time high.
The City’s leading index of major British company shares, rose by around 1.6%, or 137.3 points by mid afternoon to stand at a record high of 8529.20 by early afternoon. The previous high water mark was 8445 set in May.
The remarkable “Reeves Rally” came after a torrid two weeks for the Chancellor as weak economics data sent gilt yields soaring and the sterling sharply down.
But economists say they are increasingly confident that the Bank of England will order a cut in interest rate next month when its Monetary Policy Committee next meets. A quarter point cut to 4.5% is seen as most likely.
That will reduce the burden on homeowners with large outstanding mortgages, perhaps ramping up consumer confidence and spending, as well as helping heavily indebted businesses and encourage investment.
The latest surge caps a spectacular week for the stock market with the FTSE 100 up more than 3% despite the gloomy economic backdrop of flatlining growth and the falling pound. Analysts said sterling’s weakness against the dollar has helped shares in companies which make much of their profits in America.
The spike in the oil price has also boosted shares in global energy companies such as BP and Shell which are major constutuents of the FTSE 100.
The surge in share prices in the UK will increase the wealth of investors who hold the shares but also boost the value of pension funds with holdings in British companies.
his week has been a rare moment in the global limelight for the London stock market, which has lagged far behind its peers in America where rampaging share prices of tech giants such as Nvidia and Amazon have sent markets soaring to stratospheric levels.
Susannah Streeter, head of money and markets, at investment platform Hargreaves Lansdown, said: The FTSE 100 has caught that Friday feeling, surfing upwards on a wave of enthusiasm, powered by expectations of lower interest rates and a weaker pound.
“The blue-chip index is stuffed with global giants, like miners, which benefit from cheaper sterling, and were among the biggest gainers of the morning. The pound fell to $1.21 after a disappointing snapshot of retail sales showing a contraction for the so-called ‘golden quarter’, adding to the picture of stagnation for the UK economy. But it’s provided a tailwind to multinationals and hopes of interest rate cuts from the Bank of England have buoyed investor sentiment.
“FTSE 100 stars like Rolls Royce and Nat West, which saw their share prices double over the year, are among the climbers today. The FTSE 100 has been a laggard compared to US indices. They surged higher in 2024, with the S&P 500 gaining more than 23%, helped by big gains among the mighty tech stocks, fuelled by AI optimism.
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“But appetite for UK market is being revived, as investors are attracted by its defensive characteristics in an era of global uncertainty.”
Dan Coatsworth, investment analyst at brokers AJ Bell, said: “It’s refreshing to see positive news around the UK stock market given its unloved reputation.
“Helping to drive the index up more than 1% and above its previous intraday record of 8,474 in May 2024 was a further slump in the pound as retail sales came in below expectations for December.
“Three quarters of companies in the FTSE 100 generate their earnings overseas, and the relative value of those foreign earnings is boosted when the pound weakens. The natural resources sector was also lifted by merger and takeover chatter, encouraging investors to bid up shares in the likes of Glencore and Anglo American.
“Weak UK retail sales in December are a worry as they indicate further pressure on the economy following weak GDP data yesterday. Traders are pricing in an 81.5% probability that the Bank of England will cut interest rates by a quarter percentage point next month. Retailers will be keeping their fingers crossed this happens as it could help to take some of the pressure off household finances and encourage more spending.”