The UK stock market: is it really at an all-time high?

The Financial Times Stock Exchange (FTSE) 100 share price index broke the 7,000 points threshold for the first time on 20 March 2015, increasing its post-financial crisis gains and putting it comfortably above its pre-crisis peak1. There were similar gains for the FTSE 100’s bigger brother – the All Share Index – which includes more than 600 companies and represents 98% to 99% of the total value of all UK-listed companies.

The London Stock Exchange includes companies from all over the world, meaning its performance is likely to reflect the global situation – as well as that of the UK. Yet while stock markets are inherently volatile barometers of a country’s economic situation, the recent highs suggest our economy is in rude health2.

FTSE All Share index, United Kingdom, 1973 to 2014

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However, after accounting for inflation things look a little different.

The FTSE All Share actually remains well below its 1999/2000 levels when the data is more widely compared against the performance of the economy. The chart below shows the FTSE All Share index as a share of the UK’s Gross Domestic Product (GDP) and, separately, adjusted for inflation using the GDP deflator3.

FTSE All Share index in proportion to GDP levels in current prices and adjusted for price growth, United Kingdom, 1973 to 2014

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Using this comparative approach, the FTSE All Share index – adjusted for inflation – is actually 18% below its January to March 2000 level. As a percentage of GDP (non-adjusted), the index is 38% below its peak in April to June 1999. The market is buoyant, though – with share prices generally above their long term average.

In conclusion, although the UK stock market continues its recovery from falls like the bursting of the Dot-com bubble and the 2008 economic crisis, the recovery from these events in the broader economy has not been as strong.