Sometimes I really despair of the Guardian, who can't keep up with the delusions of the administration that they ostensibly support. This morning, when they heard the GDP statistics they marvelled that the FTSE hadn't dropped. This they said was a sign that things aren't bad at all. Sorry guys, you will have to do better than that. Do ty to keep up.
First of all we had the news that the FTSE was boosted by mining stocks. There in't a lot of mining in the UK, so this news had nothing to do with he UK economy and everything to do with world commodity prices, possibly connected with the declining value of the pound against the dollar and commodities in general, but that is not the main point.
The main reason the FTSE didn't drop is because it is already overvalued. Does that make sense? No, well then you weren't listening last week when Charlie Bean (of the Bank of England) told the world that the purpose of QE was not to fill the banks with cash, but to raise the value of the assets they held. This would boost their balance sheets and plug them full of Tier 1 equity. [As an aside, if that was the reason, I fail to understand why the BoE didn't simply subscribe for £175m of bank equity paid for in the same way, by printing electronic money transferred into the selling bank's account at the BoE, but I digress].
So QE is all about hyping markets and that spills over into the FTSE. More recession means more QE, and more QE means more cash chasing the same gilts and equity, which means higher asset prices (or lower value of money depending how you look at it). So the economy is still in a mess but the FTSE stays at the same price because the market expects more dodgy government money to be on its way any time soon.