Investors betting that a weak pound will help UK firms abroad

London’s Financial Times Stock Exchange (FTSE) 100 stock index has closed at a record high, gaining more than one per cent to end the day at 7,901.8 points.

The index of the UK’s biggest publicly listed companies closed yesterday at the highest level in almost five years, passing the previous closing record set in May 2018. The BBC is reporting that the rise in the FTSE 100 is due to investors betting that a weak pound will help UK firms abroad.

This is in addition to the belief that the worst of the cost of living crisis has passed. The FTSE is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalisation.

The milestone follows years of the UK lagging other big financial markets, where shares have benefited from a weaker pound because the index on the London Stock Exchange has many firms with big footprints overseas.

Exports benefitting from cheaper pound

As such, a weak pound makes goods they export cheaper for foreign buyers and helps inflate the value of business done elsewhere. The FTSE 100 is dominated by banking and energy companies, which have performed relatively well, the latter sharply boosted by higher oil and gas prices.

Adding to the optimism of the FTSE 100 are signs that price rises around the globe have peaked, so could be slowing soon and so interest rates may soon do so as well, making borrowing cheaper and helping money flow more freely through the economy. The renewed momentum in markets may be welcomed by investors – including holders of pension funds with only five weeks into what could be another eventful year.

Analysts said shares were also buoyed by signs that the economic picture is brightening as inflation – the rate at which prices rise – shows signs of slowing across key global economies. AJ Bell markets analyst, Russ Mould commented: “A lot of the [economic] news seems bad, but markets are saying that was priced in during 2022’s heavy mid-year falls, and the bad news is known.”