London Stocks March On (Press, 18 May 1987)

On 18 May 1987, the London stock market experienced a noteworthy surge as share prices climbed, largely driven by positive sentiments among overseas and institutional investors. Confidence regarding a potential Conservative victory in the upcoming General Election on June 11 stimulated this bullish behaviour. The FTSE 100 index marked a significant milestone, achieving four record closings out of five days, culminating in a record high of 2189.7, which was an increase of 63.2 points over the week. Observers noted that speculation regarding a cut in base lending rates from 9 per cent to 8.5 per cent might be delayed until after the election. There was a significant influx of ‘hot money’ into the sterling, reflecting speculations about the Conservatives returning to power. However, dealers expressed caution, warning that this capital could be withdrawn rapidly post-election, potentially prompting the Bank of England to refrain from enacting a rate cut to avoid having to increase rates soon afterwards. A range of trading results released during the week further boosted investor confidence. Notable companies, such as Shell, BP, and Grand Metropolitan, reported encouraging gross profit levels. Stocks of companies privatised by the Conservatives, including Rolls-Royce, performed particularly well, with shares closing at a premium following an oversubscribed flotation offer. British Telecom also progressed well, rising 8 pence to 308 as concerns regarding potential Labour Party renationalisation diminished. The pharmaceuticals sector attracted significant attention, particularly with Wellcome's shares climbing after government support for its AZT AIDS treatment drug. Other firms, such as Reckitt and Colman and Glaxo, also showed impressive gains. While government bonds fluctuated to a mixed close, concerns about the substantial supply in the market persisted. The week marked the inaugural British gilt auction, with £1 billion in bonds issued on a part paid basis and an additional £1 billion pending release. Company trading reports drew considerable interest, particularly within the insurance sector, where several companies announced positive interim results, such as Royal and General Accident. Shell exceeded expectations with its historical cost net income, contributing to its increase in share price, while BP also reported positive first quarter figures. However, some companies faced mixed reactions. Saatchi and Saatchi's shares saw only a mild increase despite a substantial rise in half-year profits, as concerns lingered over its performance in the U.S. Meanwhile, British Aerospace shares experienced downward pressure due to profit-taking following government announcements regarding funding. Overall, while the market was buoyed by positive trading results and upbeat forecasts due to the political climate, investors remained cautious, particularly with respect to possible fluctuations in share prices following the election results. The sentiment in the market was one of anticipation mixed with a degree of unease surrounding future developments, especially post-election.

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