The drivers behind the FTSE 100's record high
Britain’s blue-chip index may have started the year by reaching a record high but its gains have been fuelled by a boom in commodity prices and the fall in sterling. So are they sustainable in 2017.
The fall in sterling is particularly significant: around 70pc of FTSE 100 firms earnings are made overseas and any fall in the pound makes the more valuable in sterling terms.
During 2016 the FTSE 100 rose by more than 19pc. The rise of the index in 2016 also hides the enormous divergence within it. Looking at the index sector by sector shows that there were some large risers and some steady fallers.
Oil and gas producers rose by 50pc last year, while the FTSE 350 mining index rose by 100pc, according to data from JM Morgan Asset Management. On the other hand, retailers fell by nearly 14pc, while the telecoms sector was down by 21pc and food producers lost 9pc.
There are two big question marks hanging over Britain in 2017. The first is domestic earnings. “Economic growth in the UK is probably going to slow down significantly because inflation is likely to rise and that means real consumer purchasing power is going to diminish”. The other big risk to British shares is BREXIT and the associated uncertainty.