The stock market hit its highest level since September 2000 yesterday, buoyed by predictions of a ‘modest recovery’.
A surge in Royal Bank of Scotland’s share price boosted the FTSE 100 index, which lists Britain’s biggest 100 companies.
On Friday, markets closed at the highest level since October 2007, a month after the run on Northern Rock.
Recovery: RBS had a surge in its share price, spurring on the FTSE 100 index of Britain's biggest blue chip companies
Last night experts predicted the FTSE would this year hit an all-time record of 6,950.6 points, set in December 1999 at the height of the ‘dot com’ boom, and could even break the 7,000 barrier.
The benchmark index rose 0.5 per cent yesterday, closing at 6,755.63 points. The last time it closed at this level was on September 5, 2000, days before lorry drivers’ blockades over fuel prices rocked Tony Blair’s government.
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The markets have been buoyed by Bank of England governor Sir Mervyn King’s prediction last week of ‘modest but sustained’ recovery.
Experts say fears of a full-blown eurozone crisis have also subsided since European Central Bank president Mario Draghi said last summer that he would do ‘whatever it takes’ to save the single currency.
Improvement: Last month, the Chancellor received a surprise boost when the UK averted an unprecedented 'triple dip' recessionThe FTSE has risen around 14 per cent since the start of the year, only slightly behind the US stock market, which has gone up by 16 per cent.
Stubborn: Last week Sir Mervyn King warned inflation would remain 'stubbornly high'This has driven up the value of pension pots and investment funds, which invest heavily in Britain’s biggest companies.
Savers endured huge losses when the stock market plunged in 2009, combined with record low interest rates.
More recently they have ploughed money back into stock markets in search of higher returns, helping to drive share prices up.
Mark Dampier, of financial adviser Hargreaves Lansdown, said there was a ‘distinct possibility’ the FTSE could hit 7,000 points this year.
He added: ‘It doesn’t look like interest rates will fall from their record lows before the next general election.
‘Savers are giving up on deposits because they think surely they can get better returns in the stock market.’
The improvement is seen as another sign that the economy is slowly healing.
Last month, the Chancellor received a surprise boost when the economy grew by 0.3 per cent in the first three months of the year, averting an unprecedented ‘triple dip’ recession.
Official figures are today expected to reveal a small drop in inflation, with the Consumer Prices Index falling from 2.8 per cent in March to 2.6 per cent in April, researchers Capital Economics said.
In March, soaring fuel prices pushed the cost of living index to its highest level since last May, adding to economic woe.
But Sir Mervyn warned last week inflation would remain ‘stubbornly high’. Accountants Ernst & Young predicted it would not fall back to the Bank of England’s 2 per cent target for the ‘foreseeable future’.
