Index closes at 6803.87 – just 130 points below peak reached on 30 December 1999 at height of the dotcom boom
The London stock market is within sight of its all-time closing high after another surge in share prices on Tuesday.
After drifting for much of the day, the FTSE 100 index of Britain's top companies made a late rally to close 48.24 points higher at 6803.87. This marked its best level for more than 13 years and left the index just 130 points below the peak reached on 30 December 1999 at the height of the dotcom boom. Since the beginning of the year the index has risen 906 points or more than 15%.
A revival in mining shares and positive reaction to updates from the likes of Marks & Spencer and Vodafone helped push the market higher on Tuesday.
But, as has been the case since the rally began last summer, the driving force was the expectation that central banks would continue to take action to boost the global economy through low interest rates, bond buying programmes and quantitative easing. Recent data has shown a pick-up in the economy, suggesting the measures are having the desired effect.
In the UK, better-than-expected inflation figures, which showed the consumer price index falling from 2.8% in March to 2.4% last month, left the way open for further easing from the Bank of England, particularly when new governor Mark Carney takes over in July.
Concerns that the US central bank might begin to ease off its bond buying programme had been growing ahead of testimony by US Federal Reserve chairman Ben Bernanke on Wednesday. The Fed has been helping to support global markets by buying $85bn of bonds every month, and meets next month to decide its next move.
But just before the UK market closed, Federal Reserve member James Bullard seemed to allay fears of an imminent end to quantitative easing in a speech delivered at Goethe University in Frankfurt. He said the Fed should keep buying bonds while adjusting the pace of purchases depending on economic conditions. He said: "Quantitative easing… involves clear action and has been effective."
Despite the recent rally, the FTSE 100 is still lagging other global markets such as the US S&P 500 and Germany's Dax which have already reached record levels.
But the FTSE All-Share index, a broader measure, is at an all-time high having closed 24.80 points higher at 3587.85, its 14th daily rise in a row. Economist Ian Williams of City broker Peel Hunt pointed out that this run had only been beaten once – over the 1986 and 1987 new year period – since the index began to be calculated in the late 1960s.
The buoyant market is good news for the chancellor, George Osborne, as he tries to persuade voters his emphasis on public spending cuts is working. On Wednesday he will face a new test when the International Monetary Fund delivers its verdict on his austerity programme after two weeks of examining the UK economy. Last month the IMF called on Osborne to moderate the pace of deficit reduction.
Many analysts believe the FTSE 100 could soon break through its previous high and breach the 7000 level shortly after. But others sounded a note of caution. Alex Young, senior sales trader at CMC Markets UK, said: "In a technical sense markets are beginning to look a little over extended, and the potential for profit taking to trigger a market correction has to be a consideration for even the most fervent bulls. That said, as the cliché goes, markets can remain over extended for a lot longer than retail traders can remain solvent. As ever, caution is advised when fighting the trend."