The London stock market hit a new all-time high yesterday amid hopes Britain will avoid recession.
In another upbeat session for savers with money tied up in shares through pensions and other investments, the FTSE 100 index hit an intraday record of 7934 in early trading.
It later fell back to close up 20.46 points on the day at 7885.17. The latest rally came as the National Institute of Economic and Social Research said Britain will avoid recession this year, albeit narrowly.
Record high: In another upbeat session for savers with money tied up in shares through pensions and other investments, the FTSE 100 hit 7934 in early trading
Investors were also cautiously optimistic about the outlook for interest rates after comments from the leader of America’s powerful central bank.
Speaking on Tuesday night, the US Federal Reserve chairman Jerome Powell said that 2023 should be a year of ‘significant declines in inflation’ in a major boost for the global economy.
That fuelled hopes that interest rates around the world may be at, or close to, their peak after aggressive hikes in the past year as central banks battled to get sky high inflation back under control.
However, the Footsie gave up some of its gains as analysts sounded a note of caution about the outlook.
Of particular concern was Powell’s warning that rates may need to move higher than expected if inflation proves to be more persistent.
George Lagarias, chief economist at consulting group Mazars, said: ‘The FTSE 100 broke yet another record, as a result of the general global equity rally.
‘Despite the buoyancy, investors need to stop for a moment and think: what is driving positive sentiment?
‘Presently, it’s really one single factor: the belief that we are at, or very close to, peak interest rates.
‘However, none of the major central banks have yet actually confirmed that they are pausing rate hikes. Given that we are in the midst of an economic slowdown, and possibly a recession, we would approach the rally with optimism, but also a lot of caution.’
And Susannah Streeter, markets analyst at Hargreaves Lansdown, warned of further volatility ahead as the mood swings between hopes that rates in the US in particular are close to a peak and concerns of further hikes.
‘The underlying worries about just how high rates will have to go are bubbling to the surface again,’ she said.
‘The see-saw sentiment is set to continue as investors wait for fresh data to filter through, which they hope will throw fresh light on the direction of Fed policy.’
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