While the U.K. just staved off a technical recession, partly due to bumper sales at pubs during the World Cup in November and December, it’s not out of the woods yet. Like many parts of the Europe, higher energy bills following Russia’s invasion of Ukraine have weakened household spending (though things have been better in recent months due to an unusually warm winter and government price caps). Business investment has also flatlined since Brexit and the number of workers in the labor pool has shrunk since COVID-19.
In fact, among the G7, the U.K has recorded the weakest recovery since the pandemic, and while the Bank of England doesn’t expect a recovery to its pre-COVID peak until 2026, the domestic stock market continues to hit record highs.
The FTSE 100 (UKX) even notched fresh intraday records on Wednesday and Thursday against a backdrop of doom and gloom. A strong performance of commodities and energy stocks, and catalysts like earnings at Shell and BP, have seen the benchmark rip higher. It’s also important to note that companies in the index have over 80% of their revenue coming from overseas. “The U.K. FTSE 100 is not about the U.K. domestic economy,” noted Janet Mui, head of market analysis at RBC Brewin Dolphin.