The truth of that old piece of wisdom was demonstrated on Thursday as the FTSE 100 went on a rip-roaring run – up 104 points, or 1.2%, to a new closing high of 8,727 – while the Bank of England cut interest rates because the UK economy was flat on its back.
Grim news for Rachel Reeves is good news for the FTSE 100 | Nils Pratley The stock market is not the economy – as shown by the new closing high after the Bank of England’s rates cut.
Thus if lower UK interest rates also mean a lower pound – and sterling fell almost a cent against the US dollar as the Bank cut by a quarter-point to 4.5% – there is a straightforward translational effect.
If it is now more likely that UK interest rates will be 4% by the end of year (and possibly a notch lower, according to market prices), the plumpish dividend yield on the Footsie starts to look positively fat.
At the time, Goldman’s calculations showed the UK stocks as a whole priced at 11.9 times expected earnings, compared with 22.9 times for the US market.
