Pound Strengthens Amid UK Private Sector Growth, Pressuring FTSE 100 from Record Highs

The FTSE 100, London’s blue-chip stock index, closed lower on Friday after several record-breaking sessions earlier in the week, weighed down by a stronger pound driven by unexpected private sector growth in the UK.

FTSE 100 Dips After Record Highs
The FTSE 100 fell by 63 points, a 0.7% drop, to end the day at 8,502. This marked a retreat from the record highs achieved earlier in the week. The decline was partially attributed to the pound’s rise against major currencies, as many FTSE 100 companies generate substantial revenues from overseas markets. Typically, a stronger pound impacts these companies negatively, creating an inverse relationship between the FTSE 100 and sterling.

UK Private Sector Growth Boosts Sterling
Data released on Friday revealed a surprising uptick in UK private sector growth during January, surpassing economists’ expectations. However, the survey also highlighted concerns about rising business costs, declining optimism, and a weakening jobs market. Despite these challenges, the unexpected growth propelled the pound to a 1.14% gain against the dollar, reaching $1.249, and a 0.2% rise against the euro, trading at €1.189.

European and US Markets Show Mixed Results
European markets saw mixed performance, with France’s Cac 40 rising 0.4%, while Germany’s Dax edged down 0.1%. Across the Atlantic, US markets were muted, with the S&P 500 trading flat and the Dow Jones slipping by 0.1% shortly after UK markets closed.

Key Company Updates
Burberry’s Turnaround Efforts
Luxury fashion brand Burberry announced a dip in sales over the festive period but shared optimism about its £40 million cost-cutting program launched in November. Early signs suggest the turnaround plan is yielding results, boosting Burberry’s shares by 10%.

Severn Trent’s Dividend Announcement
Water company Severn Trent pledged a higher dividend for the 2025/26 financial year, with a proposed payout of 126.02p per share, up from 121.71p for the current year. The announcement comes as the company’s performance remains in line with expectations. Despite this, Severn Trent shares fell 1.9% on Friday.

Oil Markets and Brent Crude Prices
Brent crude oil prices fell by 0.5%, closing at approximately $76 per barrel, reflecting ongoing volatility in global energy markets.

Biggest Movers on the FTSE 100
Top Gainers:

Diageo: Up 102p to 2503.5p
JD Sports: Up 2.3p to 84p
Mondi: Up 24.5p to 1229p
DS Smith: Up 12p to 615p
WPP: Up 13p to 739.8p
Top Losers:

Marks & Spencer: Down 11.3p to 321.5p
Shell: Down 63p to 2620p
Centrica: Down 2.9p to 134.7p
Next: Down 194p to 9340p
Hiscox: Down 22p to 1066p
Conclusion
The FTSE 100’s retreat from record highs highlights the delicate balance between global market dynamics and domestic economic indicators. While stronger-than-expected UK private sector growth bolstered the pound, it created headwinds for the internationally focused index. Investors will be watching closely as economic and corporate developments continue to shape market movements.