The UK stock market hit a record high on Tuesday, as shares were lifted by hopes of interest rate cuts and an easing of geopolitical tensions.
The FTSE 100 index of blue-chip stocks listed in London hit 8,076 points on Tuesday, surpassing a previous high of 8,047 in February 2023.
On Monday, it ended at a record closing high of 8,023 points.
The FTSE hit its new peak as City investors anticipated two cuts to UK interest rates this year, with the first now fully priced in for August. Last Friday, the Bank of England deputy governor, Sir Dave Ramsden, predicted that UK inflation could be lower than expected over the next three years, and remain close to the Bank’s 2% target. The headline rate of inflation is now 3.2%.
the prediction weakened the pound, which fell to its lowest since November this week at about $1.2340, pushing up share prices of multinational companies whose dollar earnings are more valuable in sterling terms.
But the FTSE 100 fell back from its intraday high, after Bank of England chief economist Huw Pill indicated on Tuesday that he believed rate cuts were still some way off.
The FTSE 100 ended Tuesday at a new record closing high, for the second day running, at 8044 points.
Investor confidence has also risen this month, particularly in the UK market, according to the financial services group Hargreaves Lansdown.
“The UK market is currently on a considerable discount to developed market peers of about 40%, but features high-quality companies with global revenues, good cash reserves, and in many cases well-covered, attractive dividends,” said Emma Wall, the head of investment analysis and research at Hargreaves Lansdown.
“The economic picture is not as rosy as in the US, but there is a potential benefit to this if you’re a shareholder, it means that the Bank of England is likely to cut interest rates sooner than the Fed across the Pond.”
The top FTSE risers on Tuesday were Primark owner Associated British Foods, up by 9%, JD Sports, up by 6% and Ocado, up by 5%.
Sentiment was also bolstered by the lack of any further escalation in the Middle East in recent days, after Israel’s attack on the Iranian city of Isfahan on Friday.
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“Indeed, yesterday saw Iran’s foreign ministry spokesperson say that Israel had received the “necessary response at this stage”,” Jim Reid, a strategist at Deutsche Bank, said.
The FTSE 100 index has gained about 4% so far this year amid optimism that Britain’s economy has returned to growth in 2024 after dropping into a shallow recession at the end of 2023.
That leaves it lagging behind other European indices, with France’s Cac and Germany’s Dax up 6.5% so far this year.
The engineering company Rolls-Royce has been the top riser on the FTSE 100 so far this year. Its shares are up by 37%, as profits have surged as it recovered from the pandemic.
The Chilean miner Antofagasta has gained 28%, lifted by a rise in the copper price this year.
Banks have had a good 2024, with NatWest up by 29% since the start of January and Barclays 25% higher.
Defence stocks have risen amid the wars in Ukraine and the Middle East, and BAE Systems is up by 20% this year (on top of a 30% jump in 2023).
The FTSE 100 was launched on 3 January 1984, when it was priced at 1,000 points. It quickly elbowed aside the FT 30 index, the previous barometer of market moves in London.
The FTSE 100 now has a market capitalisation of almost £2tn, meaning its 100 constituents – from banks and miners to retailers, airlines and housebuilders – are collectively worth less than Microsoft, which has a market cap of $2.97tn (£2.4tn).
