FTSE 100 hits record high without support from sterling

The FTSE 100 hit an all-time high of close to 7,500, despite sterling holding onto its gains made following the announcement of a snap General Election. This contrasts with the initial post referendum rally where the drop in the pound provided a boost to the index by increasing the sterling value of overseas profits made by multinationals. Instead, the recent increase in UK equities probably reflects investors’ assessment of the ultimate impact of Brexit on the economy, with a larger Conservative majority seen by some as strengthening Theresa May’s negotiating hand. UK equities also followed global share markets higher, as geopolitical risks faded in the wake of the election of President Macron in France. However, without a further fall in sterling, we doubt that the FTSE 100 will rise much more in the near term given signs of a slowdown in UK GDP growth in recent months, as rising inflation hits households’ spending power. Accordingly, we are sticking with our end-2017 forecast of 7,500. After that, we think an acceleration in GDP growth – to above-consensus rates – will drag the index higher to around 7,750 by the end of 2018.