Why the FTSE 100 Is at an All-Time High While the UK Economy Stalls
Disclaimer: The following is not investment advice. It is personal research used solely for my own informational and analytical purposes. All content, data, and assessments included may contain errors, omissions, or inaccuracies, and are subject to change without notice. This material should not be interpreted as a recommendation to buy, sell, or hold any security. Always perform your own due diligence or consult a qualified financial advisor before making any investment decisions.
The FTSE 100 has soared to new record highs, now hovering near 8,940, even as the UK economy faces stagnant growth, weak consumer demand, and subdued business investment.
So how can the market be booming while the economy limps along?
📌 What’s Driving the FTSE 100 Rally?
🔹 Global Commodity Boom
UK-listed mining and energy giants like Rio Tinto, Anglo American, Shell, and BP are surging thanks to high prices for oil, copper, and other key resources.
Heightened geopolitical tensions and supply chain constraints are fueling demand for raw materials — a major tailwind for the FTSE’s resource-heavy composition.
🔹 Strength in Healthcare and Defence
Healthcare firms like AstraZeneca and GSK are benefiting from steady international demand and robust margins.
Defence contractors such as BAE Systems are capitalizing on increased global military spending, especially across NATO countries.
🔹 Investor Rotation into Value and Dividends
Global investors are shifting capital away from overvalued tech stocks and toward traditional value sectors like industrials, financials, and consumer staples.
The FTSE 100 offers attractive dividend yields (around 3–4%) and lower price-to-earnings ratios compared to U.S. and European peers, making it a safe haven for cautious capital.
🔹 Bank of England Rate Cut Expectations
Soft economic data — including weak GDP growth and easing inflation — has led to expectations that the Bank of England may cut interest rates later this year.
Lower rates generally support equity prices by reducing borrowing costs and improving earnings multiples.
🔹 Trade Optimism and Relative Political Calm
A new trade agreement between the UK and the U.S. earlier this year has eased investor concerns about tariffs and market access.
With upcoming U.S. elections and policy uncertainty, the UK is seen as relatively stable in comparison — drawing foreign inflows.
💷 What About the Pound?
Sterling is currently strong, trading around $1.36, after peaking at $1.3743 on July 1, 2025 — the highest level in over a year.
A stronger pound typically reduces FTSE 100 companies’ overseas earnings when converted to sterling, acting as a slight drag on profits.
Despite this, the FTSE is still pushing higher — suggesting that sector performance and investor flows are outweighing currency effects.
📉 The Economy Isn’t Driving the Rally
The UK economy remains flat: GDP contracted 0.3% in April, and business investment is tepid.
Real wages are under pressure, and high mortgage rates are weighing on household confidence.
However, around 75–80% of FTSE 100 revenue is generated outside the UK, meaning the index is more tied to global dynamics than to domestic conditions.
🧠Summary
The FTSE 100’s rise isn’t a reflection of a healthy UK economy. It’s being driven by:
Strong global demand for commodities and energy
Outperformance in healthcare and defence sectors
Capital rotation into undervalued, dividend-paying stocks
Anticipation of BoE rate cuts
A stable political and trade backdrop
International earnings that insulate the index from domestic weakness
✅ Bottom Line
The FTSE 100 is hitting record highs despite the UK economy — not because of it. This is a globally driven rally powered by energy, mining, and capital flows seeking value and safety. While the high street may be struggling, the City is booming — and the divergence is only growing more stark.