The FTSE 100 was a beneficiary of a weaker pound on Wednesday after the UK government was plunged into chaos. London’s leading index was 1.4% higher at 7,125 at the time of writing.
“Turmoil in Westminster is adding another layer to the uncertainty hanging over the prospects for the UK economy amid a darkening global outlook. The pound has plummeted to levels not seen since March 2020 in the early days of the pandemic,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“However, the flight to the dollar accounts for much of the slide in sterling we’ve seen over the last 24 hours as investors take fright about the worries about recessions hitting.”
The FTSE 100 has an inextricable inverse relationship with the pound and today’s move highlights how the FTSE 100 doesn’t reflect the strength of the UK economy.
Asset managers jump
Asset and investment managers were among the top risers as abrdn stormed 6% higher and St James’s Place added 3.5%.
abrdn announced a £300m share buyback on Wednesday.
Investment platform Hargreaves Lansdown gained 4% as the new Chancellor hinted at tax cuts that could provide taxpayers with additional cash to invest.
Retail stocks, including JD Sports and Ocado, also surged on hopes a tax cut would boost demand for their goods.
Oil shares were largely flat as energy markets stabilised after a sharp decline yesterday.
“Having slumped in price last night, oil managed to claw back some of its losses on Wednesday as the market stabilised. The question is, how long will this stability last? On one hand, a recession could easily reduce oil demand. On the other, supplies remain tight, so we perhaps won’t see a big price crash if the world grinds to an economic halt,” said Russ Mould, investment director at AJ Bell.