Matthew Lynn

It has finally happened. In trading on Tuesday afternoon, the UK’s FTSE 100 index finally closed in on an all-time high. It hit 8,015 points, itching above the previous record closing level of 8,014 set in February 2023 – even if it was still a whisker below the intra-day trading record of 8,043, also from February last year. With stock markets rising around the world, at some point this week or perhaps next, the FTSE 100 will be setting fresh records daily. We may even be treated to one of those self-congratulatory tweets the Prime Minister, Rishi Sunak, specialises in. The trouble is, there is nothing to celebrate. In reality, the FTSE has been a dismal disappointment. Nothing will change that soon.  With inflation, record highs are inevitable.

Mortgage rates will finally start to come down again. Consumers will have a little more money in their pockets. And companies will find it cheaper to invest. Today’s cut in interest rates was a much needed boost for the economy. Oh, but hold on. That was over in Switzerland, where the central bank this morning cut rates by 0.25 per cent. By contrast, the Bank of England has today kept them on hold. This raises the question of whether the Swiss or British central banks have a better record of managing monetary policy. If most people in the markets had to put money on it they would probably place a franc or two on Switzerland.  The Bank of England has blundered all over again – and the price for that will be a high one This may well prove to be just the beginning.

Growth will be turbo-charged, animal spirits will be unleashed, and foreign investment will flood back into Britain. Shadow chancellor Rachel Reeves is promising a Thatcher-style revival of the British economy if Labour wins power. But there's a problem with the pitch that she will deliver in her keynote Mais lecture on the economy today: a Labour government isn't going to deliver this promised growth. Reeves is setting herself up for failure.  Labour's proposals are painfully thin With at most only a few months left before she takes charge of the Treasury, as she inevitably will, Reeves is making it clear that she expects the UK to return to the 2.5 per cent annual rate of expansion that were normal in the 1980s and 1990s.

A lot has happened over the past 34 years: the Cold War ended, several wars have taken place in the Middle East, a banking collapse occurred, and a global pandemic left millions stuck inside their homes. But one thing remained constant throughout: the bear market – a price drop of 20 per cent or more from the most recent high – in Japanese equities ground on and on relentlessly. After hitting an all time high of 39,915 points on 29 December 1989, the Nikkei 225 which covers the country’s major companies slumped and slumped again. Today, it finally recovered all those losses, setting a fresh all time high. There is a lesson in that for investors everywhere. All bear markets end eventually, even Japan’s.

The City of London would be hollowed out. Bankers would have to retrain as burger chefs. And Paris and Frankfurt would emerge as the twin centres of the European financial markets, leaving London as little more than a backwater. Of all the predictions made by some Remainers during Brexit, there was one that kept re-emerging: that financial trading would inevitably move to the other side of the Channel.  It's clear that this doom mongering was overblown. A deal has finally been struck between EU chiefs and the bloc’s member states that will keep the City of London in business for several years to come.

Government borrowing is lower than had been forecast. The economy needs some form of a boost. And perhaps most of all there is an election within a few months. There are plenty of reasons why Chancellor Jeremy Hunt might want to cut taxes slightly in his spring Budget, and perhaps even once more by the autumn. But hold on. The International Monetary Fund (IMF) has just said it would be ‘fiscally irresponsible’. Well, perhaps. And yet, the IMF’s record on forecasting is very poor, and it is also very committed to a high-tax, big-state economic model. On that basis, Hunt should just ignore it, and cut taxes anyway.

Christine Lagarde, the president of the European Central Bank, has one of the most glittering CVs in European politics. The ex finance minister of France, and former managing director of the International Monetary Fund, earns £365,000 a year for running the show at the ECB. But is she any good? An internal poll of staff at the Bank, leaked to the press, suggests not. It found that more than half of employees rated her leadership of the organisation as either ‘poor’ or ‘very poor’. Her own people reckoned she put self-promotion ahead of the institution (‘Quelle surprise’ as they would say in her native country), pushed an irrelevant political agenda, and had little knowledge of the markets or the economy. 'Lagarde is generally reported as being an autocratic leader.

Why is Oxfam so concerned about the coming possibility of the world’s first trillionaire? The charity has this week released a report with an apocalyptic warning that one is likely within the next decade. Yet surely people only get that rich by making something that people want. That should be celebrated instead of condemned.  In a report published for the start of Davos, the annual event where very rich people gather at an expensive resort in Switzerland to worry about being rich, Oxfam said the world’s first trillionaire could come soon. Apparently, that showed we are entering a ‘decade of division’. ‘We have the top five billionaires, they have doubled their wealth’, said Oxfam’s executive director Amitabh Behar.

The charlatans had been exposed. Its flimsiness had been confirmed. And the bubble had finally burst. Rewind to just over a year ago, and with the collapse of the crypto exchange FTX and the arrest of its billionaire founder Sam Bankman-Fried it seemed as if the legions of skeptics of the digital currency Bitcoin had been proved completely right. But hold on. Over the last few months, its price has soared again. In reality, Bitcoin has made fools of its critics once again.  In the wake of the FTX scandal, Bitcoin, along with its digital imitators, seem headed for history’s dustbin. After all, the collapse seemed to confirm all the accusations levelled against it. It was over-hyped, fraudulent, and unreliable.

Well that was a surprise. At just 3.9 per cent, down from 4.7 per cent, the latest inflation figure published today came as a shock for many. The figures are far lower than the consensus forecasts, and even low enough to allow the Prime Minister Rishi Sunak to meet his forecast to halve the rate by the end of the year. But should we really be surprised that inflation has fallen so rapidly? Monetarists – who noticed that the money supply has been contracting since the start of the year – won't be taken aback by the inflation figures. They said all along that the flow of money is the key to inflation – and they've been proven right.