FTSE pushes to new highs despite government borrowing missing targets

by | Apr 23, 2024

Following yesterday’s record high close for the FTSE 100 of 8,023.87, the index has pushed on to make further gains this morning. In addition to the latest public sector finance data, it’s giving market watchers plenty to think about today.

Lindsay James, investment strategist at Quilter Investors, comments; “Off the back of a bumpy few days for US stocks, as markets digest the modest, but growing, probability that the next move in interest rates could even be upwards and that the Magnificent Seven are fast morphing into the Three Musketeers, the FTSE 100 has managed to reach a new all-time high. With economic growth still lagging many of its G7 peers, the UK has turned this to its strength in the fight against inflation, which last month fell below that of the US and saw Governor Andrew Bailey announce that this data shows the UK is “pretty much on track” with the central bank’s forecasts.

“This has led investors to anticipate that rate cuts could arrive in the UK well before the US, weakening sterling by just over 3% against the dollar so far this year, and continuing a long running trend that has seen the pound decline more than 25% against the dollar in the past decade, a period over which the FTSE 100 has delivered only around a quarter of the returns generated by the S&P 500. With the bulk of FTSE 100 company earnings generated internationally, this currency weakening conversely benefits UK-based investors as those earnings have risen in sterling terms, offering some relief in the story of long-term underperformance of the home market relative to Europe and the US.

“With the ONS today announcing the state of public sector borrowing, this serves as a reminder that the government must walk a fine line to avoid another deeper currency rout such as the one memorably triggered by Liz Truss’s government in 2022. UK borrowing came in higher than expected at £121bn, down around £8bn on the prior year but missing the target set by the OBR by £6.6bn, caused by higher spending on public services and benefits, the latter of which rose £36.9 billion to £291.4 billion. As the election nears, the pressure remains for the Chancellor to not only manage some of these fast-growing costs but also ensure that the government has the income to pay the bills. The price of sterling will be one indicator of how successful he, or perhaps soon she, will be in this ongoing balancing act.”

According to David Cumming, Head of UK Equities at Newton Investment Management, this new UK FTSE 100 market high “has potential for being a new dawn” as he comments: “The new market high has been a long time coming but despite the global uncertainty this has the potential for being a new dawn, rather than a short term blip.

“The UK is cheap, relative to other markets, while relative trends in commodity prices and interest rates now favour the UK’s company mix as  the global  tech rally fade.

“For the UK consumer, in the near-term things are looking up– with recent tax cuts, lower inflation figures and rising earnings. Retailers such as Tesco, with exposure to these trends, were notable upward gainers today.

“The recent rise in bid activity is a further positive valuation signal for the FTSE”.

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