The London stock market continued its record-breaking run yesterday as the economy roared back from recession and investors bet interest rates could be cut next month.
In another upbeat session for savers with money tied up in shares through pensions, ISAs and other investments, the FTSE 100 topped 8400 for the first time to hit an all-time high of 8455.
It ended the day up 0.6 per cent, or 52.41 points, at 8433.76 – its best ever close – as analysts declared ‘the mood music is changing’ after a prolonged period of gloom about the UK economy and the stock market.
The blue-chip index has gained nearly 10 per cent this year – adding £175billion to the value of the stock market’s 100 biggest companies.
The rally came as official figures showed the economy grew by 0.6 per cent in the first quarter of the year – bringing last year’s brief recession to an end.
The economy looks set for a further boost this summer after the Bank of England this week gave its strongest signal yet that interest rate cuts are on the way.
Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said ‘it’s clear a corner has been turned’.
She added: ‘Confidence breeds more optimism, and with the economy showing signs of repairing and the FTSE 100 rallying higher, the glass half-full sentiment is settling in.
‘The blue-chip index has powered higher and set fresh records after a sheen of positivity has descended on the UK.’
Russ Mould, investment director at broker AJ Bell, said share prices remain cheap and could have further to rise given the prospect of interest rate cuts.
‘It feels as if the mood music on rates is changing,’ he said.
‘The UK market still feels very cheap on earnings and it’s still very unloved. If people decide to change their minds, it could be quite interesting.’
Bank of England governor Andrew Bailey this week said that the fight against inflation was ‘moving in the right direction’ and hinted rates could be cut as soon as next month.
According to bets on financial markets, there is a near 50-50 chance of a rate cut in June – when the Bank’s rate-setting committee meets – with Bailey declaring such a move was ‘neither ruled out nor a fait accompli’.
The Bank of England hiked interest rates to 5.25 per cent as it battled surging inflation – exacting a painful toll on borrowers with many seeing hundreds of pounds added to mortgage bills.
But after hitting a four-decade high of 11.1 per cent in late 2022, inflation fell to 3.2 per cent in March and is expected to have dropped even further in April thanks to lower energy bills.
Declaring that inflation is set to fall back to around the 2 per cent target in the coming months, Bailey said: ‘We are now getting back to more normal times.’