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It's been a decent year for the FTSE 100 Index Index. The London benchmark index has so far recorded a gain of 7%. Many British investors, including myself, expect further gains to come as 2025 approaches.
Share prices of FTSE 100 companies are determined by a large number of factors. However, I believe these four are particularly important for the UK large-cap stock market in the coming months.
Let's explore each of them in turn.
Interest rates
Last month, the Bank of England cut interest rates to 5%. Many City analysts expect further cuts. The Monetary Policy Committee will meet again on 19 September.
Typically, the share prices of many FTSE 100 companies rise when interest rates fall as borrowing costs plummet. However, this is not the case for all Footsie stocks.
For example, bank stocks such as Barclays, HSBC Bankand LloydsThey have a complex relationship with changes in interest rates, as net interest margins narrow when rates are lower.
Fiscal policy
In addition to monetary policy developments, investors should also keep an eye on changes in fiscal policy. The UK now has a new government. Chancellor Rachel Reeves' first budget will not be presented until 30 October, but we can expect hints of what the future might hold.
Prime Minister Sir Keir Starmer has warned the public that the budget “It's going to be painful“A £22bn black hole in the country’s finances could lead to some unpleasant tax changes for UK investors.
Capital gains tax (CGT) is in the government's crosshairs. Any drastic increase in CGT could hurt FTSE 100 stocks overall.
This also means that making the most of your £20,000 annual stocks and shares ISA limit has possibly never been more attractive.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decision.
Geopolitics
The ongoing wars in Ukraine and Gaza continue to weigh on investor confidence. Most stocks in the FTSE 100 index are exposed to these conflicts to some degree. Defence stocks such as BAE Systems They are particularly affected. It is worth keeping an eye on any developments on the battlefields.
In addition, preparations for the US presidential election in November and any changes to the UK's relationship with the EU in a post-Brexit world will have some influence on FTSE 100 stocks.
Pound sterling
All of the above factors influence the currency markets. The pound has been rising in recent months and its future direction will affect the FTSE 100.
The Footsie tends to have an inverse relationship with the pound, as many of its components are large international companies that earn revenues in foreign currencies and report profits in sterling.
A FTSE 100 stock to watch
Uncertain times can increase the appeal of defensive stocks. One FTSE 100 company with strong defensive credentials is pharmaceutical giant AstraZeneca (LSE:AZN) as demand for healthcare products remains strong at all stages of the economic cycle.
Strong sales of the company's cancer and rare disease drugs have boosted AstraZeneca's share price and the future potential of the company's product line looks impressive.
The company aims to generate $80 billion in annual revenue by 2030. In addition, the board has identified several treatments that could produce more than $5 billion in revenue in the peak year.
Of course, there is no guarantee that clinical breakthroughs will occur. A stock price correction could occur if the drug pipeline does not meet expectations.
Overall, though, I think AstraZeneca stock is an excellent investment to consider.