FTSE 100 hits all-time high as investors bet on interest rate cuts
The FTSE 100 has hit a new all-time high this morning, surpassing the previous peaks it reached in spring last year, as investors ramp up their bets on an interest rate cut by the Bank of England next month.
The value of London’s 100 largest listed companies has grown 3.2 per cent in the last week amid a flurry of disappointing economic data, which has raised the likelihood the Bank of England will cut interest rates more aggressively than expected.
The FTSE 100’s previous all-time high was reached earlier this year, on 15 May, reaching an intra-day high of 8,474.71.
Today, it reached a new intra-day high of 8,514.79, growing 1.4 per cent throughout the morning in a steady climb.
The news came after a combination of better-than-expected inflation data on Tuesday and more signs that the UK economy was stagnating.
Services inflation, perhaps the most important metric of inflationary persistence, fell to 4.4 per cent, its lowest level since March 2022.
Meanwhile, UK GDP came in below expectation for December, with the economy growing only 1.1 per cent, while retail sales slumped by 0.3 per cent throughout the month.
The data points give the Bank of England reason to cut interest rates more rapidly than markets had been expecting, with financial markets suggesting policy makers will drop the base rate by only 0.5 per cent through 2025.
The index has also benefitted from the pound falling against the dollar since September, meaning that companies that do business abroad are having their revenue boosted.
Sterling has fallen to just $1.221, compared to $1.342 in September.
“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,” said Dan Coatsworth, investment analyst at AJ Bell.
“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.”
HSBC, Shell, Rolls-Royce, Barclays and Unilever have contributed two thirds of of the FTSE 100’s growth over the past year.
The more domestically-focused FTSE 250 has seen an even stronger rally over the last week, rising 4.4 per cent, though it is still more than 14 per cent below its all-time high in September 2021.