FTSE 100 Closes Below Record High Reached Earlier As Interest Rate Worries Blow In

• FTSE 100 ends at 7,885.17 below the record close of 7,901.8 reached on Friday, and down from the all-time high of 30 reached earlier today.
• BT (LON:BT.A), BP (LON:BP), Next (LON:NXT) and Barratt Developments (LON:BDEV) help propel index higher after forecasts a UK recession could be avoided.
• Worries blow in about trajectory of interest rates, particularly in the US.

FTSE 100 Closes Below Record High

The economic weather is still proving largely clement for the FTSE 100 but there are fresh winds of worry blowing in about just how far interest rates will continue to go up in the United States, the world’s largest economy.

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A surge in payroll employment suggesting inflation could prove sticky has ruffled investors but still not blown the FTSE 100 completely off course, given that it’s closed near a record high. Right now, investors appear to be focusing more on the Federal Reserve’s acknowledgement that disinflationary forces are taking hold, and are looking past immediate concerns about monetary policy.

The defensive nature of the index has provided the seeds of growth but an improved forecast for the UK economy is also adding fresh nutrients. Geo-political turbulence has boosted the fortunes of energy giants, with BP powering upwards again as investors assess how valuable gas will continue to be as the world tries to transition to renewables.

High street stalwarts Next and Frasers group have been buoyed by rays of hope that the UK could avoid recession, and get away with a period of stagnation instead, following analysis from the NIESR think tank.

There are hopes the forecasts could see fresh confidence emerge from consumers and kick-start fresh rounds of spending. Some early green shoots of recovery from Barrett Developments showing an uptick of reservations for new homes in January, sparked a surge in the share price of housebuilders.

Rising Interest Rates

Banks have been helped by the march upwards of interest rates and are hanging onto recent gains and there are still high hopes that the recent surge in bookings for airlines will continue despite ongoing cost-of-living headwinds.

For now, conditions are kind and investors are eager to find value in UK assets, following years when the FTSE 100 appeared to be the wallflower of global indices. But sentiment could turn, if inflation proves too far too difficult to prune and price hikes start to tear into confidence once again.

Even though the UK could avoid two back-to-back quarters of negative growth, the spending power of the middle classes has been sideswiped and there could still be weakness ahead for some companies reliant on discretionary spending.

The limited tech showing in the index, is for now, more of a benefit, given how sensitive big US names have been to rising interest rates and worries about recessions rolling in. But longer term there still will be concern about why tech names have been reluctant to list in London, and efforts are likely to be stepped up to make the LSE a more attractive home for fast growing firms.’’

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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