It’s been a decent year for the FTSE 100 index. London’s premier benchmark has delivered a 7% gain so far. Many British investors, myself included, will hope for more of the same as 2025 draws closer.
Share prices of FTSE 100 companies are determined by a myriad of factors. However, I think these four are particularly important for the UK’s large-cap equity market over the coming months.
Let’s explore each in turn.
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Interest rates
Last month, the Bank of England cut interest rates to 5%. Many City analysts are hopeful further falls could be coming. The Monetary Policy Committee next meets on 19 September.
Typically, share prices of many FTSE 100 firms rise when interest rates fall as borrowing costs tumble. However, this isn’t true for all Footsie shares.
For instance, bank stocks like Barclays, HSBC, and Lloyds, have a complex relationship with interest rate changes since net interest margins shrink when rates are lower.
Fiscal policy
Beyond evolving monetary policy, investors should also monitor fiscal policy changes. The UK now has a new government. Chancellor Rachel Reeves’ first budget won’t take place until 30 October, but we can expect hints regarding what might be in store.
Prime Minister Sir Keir Starmer has warned the public that the budget “is going to be painful“. A £22bn black hole in the nation’s finances could lead to some nasty tax changes for UK investors.
Capital gains tax (CGT) is in the government’s crosshairs. Any dramatic CGT increases could hurt FTSE 100 shares across the board.
This also means that making full use of the £20k annual Stocks and Shares ISA limit has arguably never been so attractive.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Geopolitics
Ongoing wars in Ukraine and Gaza continue to impact investor confidence. Most FTSE 100 stocks are exposed to these conflicts to some degree. Defence stocks like BAE Systems are particularly affected. It’s worth keeping an eye on any developments on the battlefields.
In addition, the build up to November’s US presidential election and any changes to the UK’s relationship with the EU in a post-Brexit world will have some bearing on FTSE 100 shares.
Pound sterling
All the above factors influence currency markets. Sterling has rallied in recent months and its future direction will impact the FTSE 100.
The Footsie tends to have an inverse relationship with the pound since many constituents are large international companies that earn revenues in overseas currencies and report profits in sterling.
A FTSE 100 stock to consider
Uncertain times can boost the appeal of defensive stocks. One FTSE 100 company with strong defensive credentials is pharma giant AstraZeneca (LSE:AZN) since demand for healthcare products remains robust throughout all stages of the economic cycle.
Strong sales for the company’s cancer and rare diseases medications have boosted the AstraZeneca share price and the future potential of the firm’s pipeline looks impressive.
The business aims to generate $80bn in annual revenues by 2030. Furthermore, the board has identified several treatments that could produce over $5bn in peak year revenues.
Of course, clinical developments aren’t guaranteed. A possible share price correction could be on the cards if the drugs portfolio doesn’t live up to expectations.
However, overall, I view AstraZeneca shares as an excellent investment to consider.
