The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!
The FTSE 100 saw a record closing high on Thursday (6 February). This was despite the Bank of England dramatically cutting its 2025 UK economic growth forecast from 1.5% to 0.75%.
Some of this optimism can be explained by the decision earlier in the day to reduce the base rate by 0.25%. This means it’s cheaper for companies to borrow.
However, at first sight, it seems odd that investors reacted so positively to the forecast downgrade.
But according to Goldman Sachs, 78% of the revenues of the FTSE 100’s members were earned overseas. Problems with the domestic economy are, therefore, likely to have less impact.
And falling interest rates will probably lead to a weaker pound. This means overseas earnings will be worth more when converted back into sterling.
These factors could explain why the outward-looking FTSE 100 has never been higher.
However, this global reach could be a double-edged sword. If President Trump carries through on his election pledge to impose tariffs on most imports into the US, the prices of those goods will rise. The sales and earnings of the UK’s largest exporters could then fall.
For now at least, it looks as though Footsie investors have put these thoughts to the back of their minds.
A possible option
But in these uncertain times, I think there’s one FTSE 100 stock that investors could consider adding to their portfolios — Airtel Africa (LSE:AAF).
As its name suggest, its only exposure is to Africa, which means it’ll fall outside the scope of any Trump tariffs. And the telecoms and mobile money provider isn’t reliant on the fragile UK economy.
According to the United Nations, the population of Africa will nearly double by 2050, to 2.5bn. By then, it’s estimated that approximately 25% of the world’s population will be living on the continent.
Over the coming decades, Africa’s also likely to see some of the fastest-growing economies in the world. And as disposable incomes rise, the demand for mobile phones is likely to increase.
The company recently reported its results for the nine months ended 31 December 2024. These revealed a 7.9% increase in its customer base — to 163.1m — during the period. Importantly, data usage per person increased by 32.3%.
Investors were impressed. On the day, the stock closed 9% higher, at 145p.
Barclays has set a price target of 175p on the stock. Of course, this is just one opinion but it does show that the company has some influential supporters.
Possible issues
However, as with any investment, there are potential risks.
Customers pay in their local currencies, which can be volatile. For example, Nigeria’s naira has devalued by more than 40% over the past 12 months. Based on customer numbers, the country is Airtel Africa’s most important.
Also, telecoms infrastructure doesn’t come cheap. To support its growth plans it’s had to borrow. At 31 December 2024, net debt was $5.27bn, an increase of $1.99bn (60%) on a year earlier.
And doing business on the continent can be difficult due to political uncertainty.
However, with its strong growth potential, lack of exposure to the UK — and because it’s likely to avoid any Trump tariffs — I think Airtel Africa’s a stock that investors could consider buying.
The post The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care! appeared first on The Motley Fool UK.
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More reading
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James Beard has positions in Barclays Plc. The Motley Fool UK has recommended Airtel Africa Plc and Barclays Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
