U.K.’s FTSE 100 scaling fresh highs despite cost of living crisis

The sun rises over the city on February 6, 2023 in London, UK.

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LONDON – The UK is facing weakest growth prospects in the G-7 and a host of cost-of-living pressures are pushing the poorest into crisis and squeezing the budgets of middle-income households.

At the same time, investors’ money has never been pumped into the UK’s biggest companies. The FTSE100 The index has broken three intraday records in the past week, starting last Friday and hitting new highs in the Wednesday and Thursday trading sessions.

It also comes after a year in markets dominated by doom and gloom, with risk assets selling off and indices from across Europe. Stoxx 600 go to USA S&P 500 to Shanghai’s SSE Composite emerging bruised.

The FTSE 100’s most recent gains show that, just as happening despite extreme cost-of-living pressures, they also have something to do with them.

Energy companies like Cover And BP Have record profit and promise to pay higher dividends to shareholders, boosting their stock prices (with call unexpectedly higher taxes to support consumers struggling with higher bills without reducing their appeal).

The FTSE on Thursday climbed to an all-time high of 7,944 at midday in London boosted by gains in Standard Charteredone of many banks that has seen profits soar due to higher interest rates.

Meanwhile, strong performance in commodity stocks also lifted the index higher as they were fueled by price increases, limited supply and more recently the prospect of China reopening after Covid-19 pandemic.

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FTSE100 chart.

Janet Mui, head of market analysis at RBC Brewin Dolphin said: “The UK’s FTSE 100 is not about the UK’s domestic economy, noting that more than 80 per cent of the sales of the UK’s businesses. companies originating from abroad.

Mui told CNBC that a confluence of factors sent the index to a record high, including rush to the pound help with overseas revenues (collected in dollars); its weight on energy, commodities and finance; and the relatively strong performance of defensive staples in consumer products – such as Unilever — and health care — such as AstraZeneca.

Saxo Markets UK chief executive says UK has one of the 'worst inflationary pictures in the world'

What the UK stock market is frequently criticized for – the lack of new, well-known tech companies and the preponderance of the “old economy” stalwarts – is a boon when the cycles financial period and currency changes.

The broader FTSE 250 has stronger domestic links but still has 50% of its revenue exposure abroad, Mui added.

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said that among other factors, the FTSE’s rise could be explained by glimmers of hope in the economic picture, such as: Construction company Barratt reported a “modest increase” in new home reservations. She also pointed to forward-looking signals of Europe avoiding a recession and easing the energy crisis.

She noted that banks would perform even better if their net profit margins improved but bad loans were left unresolved.

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Shell stock price.

Among the factors weighing on the UK public are interest rates increase increased borrowing costs, grocery price inflation at a record high of 16.7% and general inflation over 10%.

ONE report published on Wednesday by the National Institute for Economic and Social Research argues that the UK is likely to avoid a technical recession this year – although growth will be close to zero – but every four households One household will not be able to pay their food and energy bills in full, and middle-income households will face a reduction in disposable income of up to £4,000. $4,873).

And the difference between a stock market rally and a dire outlook is still confronting many households.

“It is a devastating paradox that on the day the FTSE 100 index hit a record high, campaigners on behalf of 7 million lower earners in the UK called on the government to extend support to they relate to their energy bills,” Richard Murphy, professor of accounting practice at the University of Sheffield School of Management, told CNBC.

In March, the UK government is set to end its energy bill compensation scheme for households that has lasted all winter. It comes as many governments try to cut financial support to rein in public spending, with the European Central Bank recently quarrel that maintaining support packages risks sustaining inflation.

But Murphy said that without support and with bills still running high, “many people won’t be able to make ends meet and as a result will be hungry, cold or even homeless.”

“The picture this gives of a country so divided by different incomes and wealth is almost Victorian in nature,” says Murphy.

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