The FTSE 100 index has gone above its all-time high during a day’s trading, boosted by further falls in the pound.
The UK’s benchmark index broke through its previous record intra-day level to hit 7,129.83 before losing some ground.
Analysts said shares were lifted by a weak pound, which fell on fresh worries about how the UK’s economy will be affected by Brexit.
Sterling slipped below $ 1.23 and €1.11 in morning trading to its lowest value since last week’s flash crash.
The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad.
A weaker pound means overseas revenues are worth more when they are converted back into sterling.
“UK investors will once again be cheering the impact of a falling pound, as the drop in sterling once again works its magic on the FTSE 100,” said Chris Beauchamp, chief market analyst at IG.
The last time the FTSE 100 was at this level was 27 April 2015, when it reached 7,122.74 points during trading before falling back slightly to finish at a record closing high of 7,103.98.
“Brexiters might point to the FTSE’s rise as a sign of strength but this is very much a story of sterling weakness boosting foreign earnings – which account for around two-thirds to three-quarters of FTSE 100 company revenues,” said Neil Wilson, a markets analyst at ETX Capital.
Firms with large foreign businesses, such as Burberry, were among the big winners on Tuesday.
Shares in domestic companies, including housebuilders, were also doing well because of hints from the Bank of England that interest rates will remain low for a while, Mr Wilson said.
The pound has fallen more than 4% against the dollar in the past week, even putting aside Friday’s flash crash – when it tumbled to around $ 1.18 before recovering.
Some traders said the further falls on Tuesday were prompted by a report that Russian bank VTB may move its European hub away from London, adding to worries of foreign investment leaving the UK.
Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66bn a year.
Analysis: Kamal Ahmed, BBC economics editor
Why does the fall of the pound matter?
On the upside, it matters for exporters which are boosted as their goods are far cheaper on foreign markets.
It matters for multinational companies like pharmaceutical firms which earn much of their income in dollars. It matters for the tourism industry in the UK, as foreign visitors flock here for bargains and good value holidays.
On the downside, it matters for tourists travelling abroad who will find everything they buy much more expensive.
It matters for the food and fuel this country imports as it becomes more expensive. It matters for inflation, as the rise in import costs feeds through to businesses and the High Street.
And remember, it does not need much of a rise in inflation to wipe out real income growth which at present is running at around 2%. If real incomes start falling, that is when the fall in sterling becomes a truly political issue.
Because the pound in your pocket will actually be worth less.
Analysts said the pound could still fall further, with Mr Wilson warning: “Sterling seems to be looking for a level and it’s really unclear where that could be.”
He added that Friday’s flash crash, blamed at the time on a rogue computer trade, could now potentially be seen as “a very tentative toe in the water”.
‘Flash crash was right’
Also on Tuesday, a senior official at Norway’s sovereign wealth fund, the world’s largest, said the flash crash had correctly reflected expectations for the UK economy.
The fund is one of Britain’s biggest foreign investors, holding shares in most large UK companies and co-owning Regent Street.
Oeyvind Schanke, the fund’s chief investment officer for asset strategies, told Reuters: “I do believe in market forces and I do believe that investors have an ability to price. And what that price move indicates to me is that they are worried about what is happening in the UK.”
‘Not a crisis’
Sterling has now fallen about 18% against the dollar since the referendum to lows not seen since 1985.
However, the UK is not facing a “currency crisis”, according to Gerard Lyons, the former chief economic adviser to Boris Johnson and a leading Brexit campaigner.
“There’s no hard and fast rule, but you tend to know a currency crisis when you see it,” Mr Lyons, who is now a strategist at Net Wealth Investments, told the BBC.
“Effectively a currency crisis is when it’s seen as out of control and it starts to force policy to do things that are not in the best interests of the domestic economy.”
He added that a fall in sterling was “inevitable, whatever the outcome of the referendum” because it had been one of the world’s most overvalued currencies.
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