FTSE 100 closes at record high

The FTSE 100 stock index has closed at a record high, lifted by investors betting that a weak pound will help UK firms abroad and that the worst of the cost of living crisis has passed.

The index of the UK's biggest publicly listed companies gained more than 1%, to end the day at 7,901.8 points.

That was the highest level in almost five years, passing the previous closing record set in May 2018.

The milestone follows years of the UK lagging other big financial markets.

But the shares have benefited from a weaker pound.

That is because the index on the London Stock Exchange has many firms with big footprints overseas. A weak pound makes goods they export cheaper for foreign buyers and helps inflate the value of business done elsewhere.

The FTSE 250, which includes more domestically focused firms, has yet to return to its 2021 highs.

Such an emphatic bounceback in the value of our leading shares may seem surprising in the midst of an economic downturn.

But it is what these companies do - and where they make their money - that counts.

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.

And overall, the bulk of the money earned by companies on the index comes from overseas: earnings which rise in value when the pound falls against the dollar.

In fact, look at the value of the companies on the index in dollars, and it looks a relative bargain to some investors compared with many other stock markets.

Adding to the optimism too 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. But we're only five weeks into what could be another eventful year.

A pound is worth about $1.21, 11% lower than a year ago, despite recent weakening in the dollar. Sterling is also down 6% against the Euro compared with a year ago.

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 said: "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."

On Thursday, the Bank of England's Andrew Bailey said the recession in the UK was likely to be shorter and less severe than previously thought.

He also hinted that UK interest rates could be nearing a peak.

The Bank's Monetary Policy Committee (MPC) said it would only raise rates further if it sees evidence of more persistent pressure on the economy from rising prices.

Michael Hewson, chief market analyst at CMC Markets, said that after years of underperformance, the FTSE closing high was a significant moment for UK investors.

He added that the market could reach new peaks in the coming weeks.

"Putting the current economic concerns aside, there's every reason to suppose if interest rates remain at current levels, that the FTSE 100 can push on further," he said.