FTSE 100 Outperforms FTSE 250 in 2023 Amid UK Economic Concerns

The FTSE 100 index in London has outperformed the FTSE 250 index in 2023, indicating concerns about the UK economic outlook, according to Sky's Ian King. As of midday on Wednesday, the FTSE 100 was up 0.5%, while the FTSE 250 was down 0.2%. "The FTSE 100 index, which tracks the performance of the UK's largest publicly traded companies, has outperformed the FTSE 250 index, which tracks mid-sized companies, in 2023," King reported. "This suggests that investors are favoring larger, more established companies over smaller, more domestically focused ones, potentially due to worries about the UK's economic prospects."

The FTSE 100 touched a new high of 8,083.92 points and was on track for its sixth consecutive session of gains, driven by strong earnings from Reckitt Benckiser and gains in commodity stocks like Rio Tinto, Antofagasta, and Glencore. In contrast, the mid-cap FTSE 250 index was nearly flat. Lloyds Banking Group, the UK's largest mortgage lender, reported a 28% slump in quarterly pre-tax profit due to rising costs, peaking interest rates, and intensifying competition in the mortgage market.

Why this matters: The divergence in performance between the FTSE 100 and FTSE 250 highlights the growing concerns among investors about the UK's economic outlook. The preference for larger, more internationally focused companies over smaller, domestically oriented ones suggests a lack of confidence in the UK's near-term economic prospects.

Investors are now turning their attention to key economic indicators from the US, with GDP data and a personal consumption expenditures reading expected on Thursday and Friday. The Bank of England's chief economist, Huw Pill, said that interest rate cuts are somewhat closer than last month but argued that the economic outlook has not changed substantially and there are still risks if policymakers reduce rates too early. "The recovery in the pound sterling following hawkish remarks by the Bank of England's chief economist weighed on the FTSE 100, which is beginning to lose upside momentum," King noted.

Key Takeaways

• FTSE 100 outperformed FTSE 250 in 2023, signaling UK economic concerns.
• FTSE 100 hit new high, driven by strong earnings and commodity stocks.
• Lloyds Bank reported 28% drop in quarterly profit due to rising costs.
• Investors favor larger, international firms over smaller, domestic companies.
• BoE economist says interest rate cuts are closer but risks remain.