The FTSE 100 has started the year with a bang, hitting its second all-time high of 2025 on Thursday morning, surging past 8,700 points at the open. It had broken its previous record high just last month, closing above 8,500 points for the first time in January.
This follows an undeniably strong year for the index of Britain’s biggest companies, which gained about 6pc in 2024 and reached a previous record high of 8,445 points last May.
But the recent rise may have left some investors scratching their heads – if the FTSE 100 has hit record-breaking highs, then why do experts say the London stock market is trapped in a “doom loop”?
First, the FTSE 100 is no barometer for the UK economy. In fact, there is little correlation between stock market movements and domestic GDP, says Jason Hollands, of investment platform Bestinvest.
“That is especially true of the FTSE 100, which is comprised of highly international companies.”
Businesses in the index derive about 75pc of their earnings from overseas – mostly in US dollars.
The currency soared in the wake of Trump’s victory. In September last year, £1 fetched $1.34, but the exchange rate has since fallen to $1.23. While this is bad news for British travellers, it means London’s internationally focused businesses get a welcome boost to their earnings.
Mr Hollands says: “Far from being a vote of confidence in Rachel Reeves’s stewardship of the economy or the UK outlook, the bounce in the FTSE 100 index is in large part a reflection of the weakening of the pound and soaring dollar as capital flows away from the UK to the US, concluding that the growth outlook is much stronger on the other side of the Atlantic pond and Trump’s reflationary agenda will keep US rates higher for longer.”
Henry Norton, an investment manager at private bank Arbuthnot Latham, says there is another reason for the FTSE 100’s recent rise: inflation.
“Beneath the headlines, inflation has been the biggest driver of nominal earnings growth. Adjusted for inflation, both FTSE 100 earnings and price levels remain below pre-2008 and even pre-Covid levels. Clearly, this paints a far less rosy picture for UK corporates.”
The FTSE 100’s record high masks deeper issues with the London stock market.
Last year, 88 firms delisted or moved their primary listing from the main market, the biggest exodus since the financial crisis – only 18 took their place. There are now fewer than 1,700 companies on the London Stock Exchange, down from nearly 2,500 a decade ago.
However, the falling number of listings is not unique to Britain, but part of a global slump.
