The UK stock market hit a record high on Tuesday, as shares were lifted by hopes of interest rate cuts and an easing of geopolitical tensions.

The FTSE 100 index of blue-chip stocks listed in London hit 8076 points on Tuesday, surpassing a previous high of 8,047 in February 2023.

On Monday, it ended at a record closing high of 8,023 points.

The FTSE hit its new peak as City investors anticipated two cuts to UK interest rates this year, with the first now fully priced in for August. Last Friday, the Bank of England deputy governor, Sir Dave Ramsden, predicted that UK inflation could be lower than expected over the next three years, and remain close to the Bank’s 2% target. The headline rate of inflation is now 3.2%.

This weakened the pound, which is trading at its lowest since November at about $1.2340, pushing up share prices of multinational companies whose dollar earnings are more valuable in sterling terms.

Investor confidence has also risen this month, particularly in the UK market, according to the financial services group Hargreaves Lansdown.

“The UK market is currently on a considerable discount to developed market peers of about 40%, but features high quality companies with global revenues, good cash reserves, and in many cases well-covered, attractive dividends,” said Emma Wall, the head of investment analysis and research at Hargreaves Lansdown.

“The economic picture is not as rosy as in the US, but there is a potential benefit to this if you’re a shareholder, it means that the Bank of England is likely to cut interest rates sooner than the Fed across the Pond,” Wall added.

Sentiment was also bolstered by the lack of any further escalation in the Middle East in recent days, after Israel’s attack on the Iranian city of Isfahan on Friday.

“Indeed, yesterday saw Iran’s foreign ministry spokesperson say that Israel had received the “necessary response at this stage”,” said Jim Reid, a strategist at Deutsche Bank.

The FTSE 100 index has gained about 4% so far this year amid optimism that Britain’s economy has returned to growth in 2024 after dropping into a shallow recession at the end of 2023.

That leaves it lagging behind other European indices, with France’s Cac and Germany’s Dax up 6.5% so far this year.

The FTSE 100 was launched on 3 January 1984, when it was priced at 1,000 points. It quickly elbowed aside the FT 30 index, the previous barometer of market moves in London.

The FTSE 100 now has a market capitalisation of almost £2tn, meaning its 100 constituents – from banks and miners to retailers, airlines and housebuilders – are collectively worth less than Microsoft, which has a market cap of $2.97tn (£2.4tn).