London markets surge on the back of the slump in sterling
London's FTSE100 hit a record high yesterday, as sterling remained under pressure against both the dollar and euro.
The bluechip index fell back before the close, but large UK-based companies on the FTSE 100 are enjoying a boost from the weak pound, as they earn significant revenues in dollars.
Sterling has been under pressure for the last two weeks, but particularly after comments by Prime Minister Theresa May at the Conservative Party Conference suggesting the UK was heading for a 'hard' Brexit.
The pound was trading at around 90 pence to the €1, and was at around €1.23 yesterday.
The weak pound has been a major source of worry for Irish exporters selling into the UK market given the cost and competitiveness issues.
But conversely, it's given a boost to the British economy, in particular manufacturing.
Brexit Secretary David Davis also sees advantages. Questioned by MPs this week, Mr Davis agreed with one who said the fall was "a massive boost to international competitiveness".
"The simple truth is that those talking about the competitiveness of their own industries are not paying attention to the level of the pound," Mr Davis said. "While it has some downsides, it certainly has a very large number of upsides, too." The former Bank of England Governor Mervyn King, and Ashoka Mody, a former boss at the International Monetary Fund (IMF), who had once been the Fund's mission chief to Ireland, both backed Mr Davis's view.
For the British economy, the weakening is "desirable from every point of view", Mr Mody said. "The idea that Britain is in crisis or is on its knees before the exchange rate vigilantes is ludicrous," he told Britain's 'Daily Telegraph' newspaper.
"The UK economy is rebalancing amazingly well. It is a stunning achievement that a once in 50-year event should have gone so smoothly."
The weak currency is also providing a filip to Britain's stock markets. The FTSE 100 index of international companies was up 0.1pc at 7,107.76 points, near a record intraday high of 7,122.74 points set in April 2015.
The mid-cap FTSE 250 index of companies more exposed to the domestic UK economy rose 0.3pc to 18,024.73 points, near its record intraday high of 18,607.13 points set earlier this month.
Meanwhile, the Eurozone's economy is expected to see a modest upturn in the short term, according to the latest forecast from the influential German think-tank, the IFO Institute.
It is expected to grow by 0.4pc in the last three months of this year and in the first months of 2017, following growth of 0.3pc in the second and third quarters of 2016. The improvement will primarily be driven by slightly stronger external demand and a stabilisation in private consumption growth rates, the IFO said. "Consumption will benefit from a gradual improvement in the labour market and robust growth in real disposable income levels, caused by sustained low inflation. Investments will also recover slightly in the second half of 2016," it said.