The FTSE 100, a representative stock index of the London Stock Exchange in the UK, recorded an all-time high for the second consecutive day. Analysts say that the UK stock market, which had lagged behind major countries such as the US and the European Union (EU), is now gaining attention belatedly.
On the 23rd (local time), the FTSE 100 index, composed of UK blue-chip stocks, closed at 8,044.81, up 0.26% from the previous day. This marked a new record following the previous day's highest level in 1 year and 2 months. During the day, the FTSE 100 index even surpassed last February's peak of 8,047.06 by reaching 8,076.52, but it gave up some of the gains after Huw Pill, the Chief Economist of the Bank of England (BOE), continued his hawkish remarks urging not to cut interest rates too quickly.
The sharp rise in the London stock market is analyzed to be due to expectations of a UK base rate cut, which led to a weakening of the pound against the US dollar. The pound's value against the dollar has fallen by 3% since last month's peak. This is because the UK’s consumer price inflation rate in February was 3.4% year-on-year, the lowest in 2 years and 5 months, raising the possibility that the BOE will cut the base rate within the year. The market expects the BOE to make its first rate cut in August.
The weak pound helps the earnings of UK export companies, thereby boosting the stock market. Most of the global corporations that make up the FTSE 100 generate their sales in US dollars. It is also advantageous for foreign investors to flow into the UK stock market.
Signs that the UK is emerging from the recession it experienced last year are also positive factors for the stock market. The UK’s GDP in February increased by 0.1% month-on-month, showing a rise for two consecutive months.
This year’s soaring international oil prices have also contributed to expectations of improved performance for Shell, the UK’s largest fossil fuel company. Shell accounted for one-third of the FTSE 100 index’s gains this year.
Until now, the UK stock market has been undervalued compared to the US and major EU countries such as Germany and France due to uncertainties surrounding the UK economy following Brexit (the UK’s withdrawal from the EU) in 2016. Analysts say the UK stock market is now receiving belated attention. Since the first trading day of this year, the FTSE 100 index has risen about 4%, which is still lower than the French CAC 40 index (7.5%) and the German DAX index (7.8%).
David Cumming, Head of UK Equities at Newton Investment Management, said, “UK stocks have been cheap compared to global markets for some time,” and analyzed, “The recent upward trend in the UK stock market is not a temporary phenomenon but a signal heralding a new dawn.”
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