Taking Stock

The recent rise in the FTSE 100 to an all-time high has been chorused as further evidence that our economic recovery is in full flow. But beyond the trading rooms and fund managers of London the celebrations were less than muted.

Back in December 1999, at FTSE’s previous peak, when the stock market rose it did so because the nation was better off. Today it’s very different. Over 75% of the income of FTSE 100 companies is earned beyond our shores as the huge intervening shifts in global spending power tilts firms towards the new centres of economic gravity. Consequently, hitherto fairly innocuous developments, such as movements in the pound against the currencies of our main trading partners are more important drivers of FTSE profitability than domestic incomes or budget-day proclamations.

Increasing dependence of UK-listed businesses on the rest of the world forms a cute counterpoint to the government’s promise of reducing net UK migration. This pledge has been blown apart by recent data indicating that net inflows rose by 42% in the year to last September, reaching nearly 300,000. The key driver of the increase is the growing demand for foreign-born workers by UK companies who are increasingly dependent on international clients.

A sensible option would be to silently retreat from a policy which is essentially unenforceable and harms UK economic fortunes. But instead the main government partner is set to maintain the pledge in order to shore up its political fortunes while talking up a stock market index which is anything but home-grown.

TNT Business Jonathan Thomas

Twitter: @marshanalytics

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