On 31 January, the International Monetary Fund (IMF) forecast that the UK would be the only major global economy to shrink in 2023. Even Russia – hit by innumerable sanctions following its invasion of Ukraine – is expected to grow.

And yet, on 15 February, after a string of record highs, the FTSE 100 hit 8,000 points. The following day, the index – comprised of the largest 100 companies on the London Stock Exchange – closed above 8,000 for the first time in its history.

So why is the UK’s leading index performing so well amid global uncertainty, and what lessons can it teach you about patient and goal-focused investment?

Keep reading to find out.

3 important factors that have helped the FTSE 100 reach record highs

1. Putin’s war helped to secure record profits for Shell and BP

Putin’s invasion of Ukraine on 24 February 2022, caused gas and oil prices to soar. This led to increased takings and surging profits for the FTSE 100’s Shell and BP. 

BP reported a doubling of profits in 2022, to £23 billion, while Shell’s profits reached a huge £32 billion. The profits of both oil giants have helped their share price to grow, with Shell’s increasing by almost 60% since the start of 2022.

2. Falling inflation could see the UK economy outperform forecasts

The most recent inflation figures from the Office for National Statistics (ONS) confirm that inflation fell to 10.1% for the 12 months to January 2022.

Falling inflation is good news as it might slow the Bank of England’s (BoE) string of base rate rises. The rises are a tool used to control inflation – while increasing the cost of borrowing – which should be around the BoE’s target of 2%. 

Forecasts suggest that the base rate might peak this summer, possibly below 4.5%, a vast improvement on the 6% that had been suggested.

An economy set to perform better than expected has a huge effect on investor confidence, reflected in the recent FTSE 100 rise.

3. The biggest FTSE 100 companies are global concerns

The FTSE 100 is made up of the largest companies in the UK. Rather than your local butchers or bakery – or even UK-only recognisable brands – most of the FTSE 100’s biggest players are huge multinationals with global sales and profits.

In fact, interactive investor confirmed last year that an estimated 75% of FTSE 100 revenues are earned in territories outside the UK.

As predictions of a global recession have been pared down, companies with global scope have reason to be optimistic. And so do those companies’ shareholders. The IMF might have predicted the UK economy will shrink in 2023, but global growth for the year is forecast at 2.9%.

Daily stock market performance is less important than your long-term goals

A record high for the FTSE 100 is great, but it won’t stop the index – and indeed the whole of the stock market – from fluctuating daily.

These ups and downs are an intrinsic part of markets, and rises and falls are to be expected over the short term. What matters more is the general upward trend over the longer term.

Your investments are a long-term proposition aligned with your goals and risk profile.

Whatever the stock market or a specific index is doing right now, you must remember a few key points:

• Always stay focused on the long term and remember that if your goal hasn’t changed, your plans don’t need to either.
• The markets will fluctuate daily so ignore the noise, however loud, and stay clear of trends that are unlikely to align with your risk profile.
• The stock market isn’t the economy, and the FTSE 100 isn’t your investment, thanks to diversification, which we use to spread your risk exposure.

Remembering these important points should help you to stay focused whatever the economic outlook or the latest word from the London Stock Exchange.

Get in touch

While the economy and the stock market can usually be said to be heading in broadly the same direction, this might be harder to visualise currently. 

With the UK economy set to shrink, the FTSE 100 is achieving record highs. But the long-term prospects of the economy and the short-term ups and downs of the market are both only relevant in the context of your long-term goals. 

With decades of experience in the markets and the financial sector as a whole, our Chartered Financial Planners have the expertise to help you manage your investments your way. If you have any questions, please get in touch and speak to us today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.