Shares in Britain’s biggest companies reached record levels on Friday as a slump in the pound boosted the value of firms with overseas earnings.
The FTSE 100 jumped 63 points to close the day at 7,547, closely followed by the FTSE 250, seen as a better barometer of the health of UK business, which also reached an all-time closing high, rising 57 points to 20,024.
The strong performance of the stock market followed a fall in the pound, which racked up its worst falls since early February after an opinion poll showed prime minister Theresa May’s lead down to just 5 percentage points over the Labour opposition less than two weeks before the election.
Sterling sank against the euro and by a full percentage point against the dollar to below £1.28, its lowest in a month and more than two cents below last week’s six-month highs.
Many of the UK’s biggest companies earn the majority of their earnings in dollars and have enjoyed a strong surge in earnings since the Brexit vote, which triggered a near 25% fall in the pound before settling at around 15% in recent months.
Rolls-Royce was among many firms with the majority of their earnings from overseas to gain from the higher value of the dollar. GlaxoSmithKline was also boosted by an upgrade of the pharmaceuticals group by analysts from “hold” to “buy”, rising 25.5p to £16.43.
The pound also suffered after an upgrade in US GDP growth, which increased to 1.2% against an earlier estimate of just 0.7%, strengthened the dollar. Strong signals that the eurozone continues to gain momentum added to the euro’s strength. A survey of German business leaders found they expect exports to grow further despite reaching record highs.
Surveys of British businesses have added to optimistic forecasts after the UK’s GDP growth in the first quarter was downgraded to 0.2% from 0.3%. A survey by the CBI of services firms earlier this week found that optimism increased markedly on the previous month and investment intentions were upbeat.
But analysts said the catalyst for sterling’s fall was a YouGov poll in The Times giving Labour 38% of the vote, three points up on last week, and the Conservatives down one point at 43%, possibly handing May only a slim majority in parliament.
It was conducted on Wednesday and Thursday and marks Labour’s best standing in the polls since Jeremy Corbyn became leader in September 2015.
The assumption that the Tories would win handsomely, apparently strengthening May’s hand in talks on leaving the European Union, has driven the pound higher since she called an election for 8 June. The running logic of financial markets was that a big victory would let May face down hardline Brexiters in her party to make compromises needed for a smoother departure.
Michael Hewson, chief market analyst at CMC Markets UK, said: “With the pound already under pressure due to weaker than expected economic data, this surprise poll has acted as an additional catalyst in pushing the pound to a two-month low against the euro and its lowest level this month against the US dollar.
“Having started the campaign on a ‘strong and stable’ footing, recent policy mis-steps by Mrs May have seen the election campaign take on the look of an ‘ugly contest’ of mediocre candidates, and that appears to be being reflected in the recent performance of the pound.”
Nomura strategist Jordan Rochester, said: “Sterling is likely to continue to be under pressure now until the election is out of the way, if polling continues to indicate its a tighter race.
“For the market the worst outcome is if we have further uncertainty with the chances of a hung parliament.”
Adam Cole, head of G10 strategy with RBC in London, said: “YouGov says the swing in the latest poll is probably due to Conservative manifesto commitments, some of which have changed subsequently.
“There will likely be a large number of opinion polls over the weekend, so this picture could change either way in the next few days.”
YouGov said May’s personal rating improved from -8 on Monday, the night of her U-turn on the controversial social care “dementia tax” proposal, to +1 in the following days, while Labour leader Jeremy Corbyn’s personal rating slipped from -11 – his best position in the campaign – to -16.
