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The FTSE 100 closed at an all-time high on Monday as rising expectations for UK interest rate cuts weakened sterling and boosted corporate valuations in London.
Britain’s blue-chip index rose 1.6 per cent to close at 8,023.9 — eclipsing the previous closing high of 8,014.3 it hit in February last year.
The broad rally, which swept up most of the companies in the FTSE, came as the dollar extended recent gains against the pound. The index’s constituent companies earn the majority of their revenues in foreign currency and therefore benefit from a weaker exchange rate. Sterling fell 0.3 per cent to trade at $1.2333, its weakest level since mid-November.
The benchmark had underperformed rivals such as the S&P 500 this year but has closed the gap this month as traders moved away from high-flying technology stocks and switched into commodities, boosting some of the FTSE’s biggest sectors.
The pound’s weakness against the dollar comes as a gap emerges in expectations for borrowing costs on either side of the Atlantic. Traders are increasingly betting that the US Federal Reserve will keep interest rates higher for longer, while the Bank of England is expected to start bringing down rates in August.
“It’s very much about the rate differentials,” said Emmanuel Cau, a strategist at Barclays. “Markets have priced out lots of the Federal Reserve rate cuts they’d expected earlier in the year, but they’re still hopeful for the Bank of England and European Central Bank.”
The gains mean the FTSE 100 has risen 3.9 per cent since the start of the year, outperforming the Nasdaq Composite, which is up 2.1 per cent. The S&P is up 4.4 per cent since January while Germany’s Dax and France’s Cac 40 are both up about 6.6 per cent.
Despite the fresh high for the FTSE, UK stock valuations remain close to a record discount relative to their peers in the US, reflecting years of underperformance. The benchmark is just 16 per cent above its 1999 dotcom-era high, while the S&P has more than trebled in value in the same period.
“In a global context, the performance remains disappointing,” said Frédérique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia.
The index is still short of the intraday high of 8,047.06, also reached last February, but has been boosted in recent weeks by gains for energy and financial stocks.
Crude oil prices, which climbed higher than $90 a barrel this month for the first time since October, have buoyed oil majors. Shell alone has contributed almost a third of the FTSE 100’s gains in 2024.
Bank stocks have also performed strongly, with lenders Barclays and NatWest both up more than 20 per cent, helped by signs that the UK economy is emerging from the mild recession it slipped into last year.
“Growth is looking a bit more resilient than the markets expected, which is good for banks and energy prices, so you’ve got a set-up for some of the most important sectors in the FTSE 100,” said Jason Da Silva, director of global investment strategy at Arbuthnot Latham.
Figures published this month showed that UK gross domestic product grew for a second consecutive month in February, driven by an expansion in manufacturing.
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