The UK’s FTSE 100 hit an all-time high on Friday, as the blue-chip index dominated by multinational companies overcame the drag of a domestic economy headed for recession.

The FTSE added as much as 1.1 per cent on the day to trade at 7906.58, eclipsing its previous peak in May 2018, before closing at 7902. After ending 2022 up almost 1 per cent, the best-performing developed market index in local currency terms, the FTSE 100 has risen 6.1 per cent in 2023.

The UK has in the past been dismissed for being too exposed to oil and mining groups, banks, insurers, and utilities and consumer staples, and for lacking high-growth technology stocks to rival the likes of Apple, Amazon and Alphabet.

“But these vices look a little more like virtues” now that inflation and rising rates are squeezing tech valuations and pushing investors towards “potential stores of value”, said Russ Mould, investment director at broker AJ Bell.

Shell, the Anglo-Dutch oil major that is the second-biggest company on the London Stock Exchange, gained 43 per cent last year, while HSBC, the banking heavyweight, gained 15 per cent as higher interest rates boosted its profits.

Sterling’s devaluation against the euro and the dollar since Brexit has helped, too, lifting FTSE 100 companies in sectors such as oil production and basic materials that book the bulk of their revenues overseas. The pound fell 1.2 per cent on Friday.

The FTSE’s gains have come as global equity markets are buoyed by cooling global inflation and hopes that central banks will slow the pace of interest rate rises. The Bank of England on Thursday indicated that it may be close to ending its cycle of rate rises.

“I’m surprised by how strong markets are in general right now, but I get it with the UK,” said Neil Birrell, chief investment officer at Premier Miton. “There’s genuine value in the [FTSE 100], and it’s cheap.”

The long-term performance of the UK stock market remains unimpressive. The FTSE is up just 14 per cent since its dotcom era high in 1999. Since then, the value of the US S&P 500 has risen by more than two-and-a-half times.

However, the oil companies and banks that dominate the FTSE helped the UK market dodge the worst of 2022’s global equity rout, which saw the high-flying US tech sector battered by rising interest rates and dragged the S&P 500 to an almost 20 per cent decline last year.

Companies with larger imported costs, along with those more exposed to local demand, have fared less well. The mid-cap FTSE 250, which contains more interest rate-sensitive stocks and better reflects the state of the British economy, has fallen 6 per cent in the past 12 months.

Additional reporting by Martha Muir