Why is the FTSE down today? UK stock market drops shortly after reaching a post-pandemic high

The FTSE100 surpassed the 7,000 mark to a new 12-month high only to see the market fall significantly at the start of trading the following day

The Financial Times Stock Exchange (FTSE) recorded a 2% drop on Tuesday 11 May 2021.

It comes after a week of market gains which saw the FTSE100 - the 100 companies on the London Stock Exchange with the highest market capitalisation - reach post-pandemic highs.

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The UK’s top share index surpassed the 7,000 mark to a new 12-month high of 7,142 on Monday 10 May but saw the market fall significantly at the start of trading the following day.

The Financial Times Stock Exchange (FTSE) recorded a 2% drop on Tuesday 11 May 2021. (Pic: Shutterstock)

Here’s why.

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Why is the FTSE down today?

UK stock market analysts have pointed towards the overnight impact of overseas markets in Asia and the United States of America as traders worry of a rise in inflation.

The FTSE100 opened below the 7,000 mark at 6992.25, and is yet to recover by 12noon on 11 May, with the FTSE250 also recording around a 2% drop in market value.

It came as confidence dipped in the US as fears of a temporary boom in the economy post-pandemic will mean a tightening of monetary policies from central banks.

Traders worry interest rates could rise as a consequence of increased consumer spending after more than a year of watching the purse strings amid the Covid pandemic.

The coronavirus vaccine rollout, coupled with a drop in hospital admissions and deaths, has seen a degree of confidence return among society ahead of the summer.

Which companies have been the hardest hit?

Tech companies appear to be the hardest hit with the US firm Nasdaq index falling 2.6% overnight, but the dip went further than that to British engineering firms.

Gloucestershire-based engineering business Renishaw fell 6.63% - the most of any of the FTSE100 companies - and Rolls Royce was down 5.29% upon opening.

International Consolidated Airlines Group (IAG), the owners of British Airways, saw its shares fall 5.48% and Scottish Mortgage Investment Trust also had a drop of 5.62%.

Next and Burberry experienced dips of more than 4%, and JD Sports was down 3.97%.

Will the FTSE go back up again?

Market experts said technology-based companies would feel the hit harder than most.

Neil Wilson, chief markets analyst for markets.com, said: “This is shaping up to be another tech bleed as we saw in September last year, with a sea of red on the boards in Europe this morning.”

Whereas others warned that inflation fears are “clouding the recovery from Covid”.

AJ Bell investment director Russ Mould said: “Surging commodity prices are acting as a canary in the coal mine for inflation - with the huge infrastructure and stimulus packages in the US a key contributing factor.”