23 April 2024
If you are covering the latest public sector finance data or general market news, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Off the back of a bumpy few days for US stocks, as markets digest the modest, but growing, probability that the next move in interest rates could even be upwards and that the Magnificent Seven are fast morphing into the Three Musketeers, the FTSE 100 has managed to reach a new all-time high. With economic growth still lagging many of its G7 peers, the UK has turned this to its strength in the fight against inflation, which last month fell below that of the US and saw Governor Andrew Bailey announce that this data shows the UK is “pretty much on track” with the central bank’s forecasts.
“This has led investors to anticipate that rate cuts could arrive in the UK well before the US, weakening sterling by just over 3% against the dollar so far this year, and continuing a long running trend that has seen the pound decline more than 25% against the dollar in the past decade, a period over which the FTSE 100 has delivered only around a quarter of the returns generated by the S&P 500. With the bulk of FTSE 100 company earnings generated internationally, this currency weakening conversely benefits UK-based investors as those earnings have risen in sterling terms, offering some relief in the story of long-term underperformance of the home market relative to Europe and the US.
“With the ONS today announcing the state of public sector borrowing, this serves as a reminder that the government must walk a fine line to avoid another deeper currency rout such as the one memorably triggered by Liz Truss’s government in 2022. UK borrowing came in higher than expected at £121bn, down around £8bn on the prior year but missing the target set by the OBR by £6.6bn, caused by higher spending on public services and benefits, the latter of which rose £36.9 billion to £291.4 billion. As the election nears, the pressure remains for the Chancellor to not only manage some of these fast-growing costs but also ensure that the government has the income to pay the bills. The price of sterling will be one indicator of how successful he, or perhaps soon she, will be in this ongoing balancing act.”
