Britain’s blue-chip share index has closed at a new all-time high, closing the year up 14.42 per cent and adding about £232bn to the value of Britain’s top companies.

The record close means the FTSE has been Europe’s best performing major stock market this year.

Last night, Conservative MP Michael Gove, who campaigned for Vote Leave, tweeted that the FTSE had hit a record high “despite Brexit”.

Yet economists have cut the UK’s growth forecast for next year on the back of the Brexit vote.

So what is going on in the market, and what does it mean?

Why is the FTSE 100 rallying?

Part of the answer is that the decent growth of the FTSE 100 is itself a simple currency effect.

The pound is currently down about 10 per cent against the euro since the EU referendum in June, and is 17 per cent weaker against the US dollar.

The sharp decline in the value of the pound against the US dollar since the UK voted to leave the EU helped the FTSE gain ground.

Many of the 100 companies in the index are multinational miners, oil producers and global banks that do a large amount of business outside the UK. Often they do relatively little business in Britain.

A large chunk of their revenues and profits thus comes from overseas, 77 per cent of the total according to some estimates, which means they make more money when sterling is weak.

What about the latest surge?

(bloomberg)

The index latest surge was driven by mining companies, which leapt over a 100 per cent over the year buoyed by stronger commodities prices.

Mining giants Anglo American and Glencore jumped 287 per cent and 207 per cent, respectively.

The “Trump bump”, a rally prompted by the US President-Elect’s commitment to boosting infrastructure spending when he takes office next month, also propelled the index to new heights.

Why isn’t the rallying FTSE 100 necessarily good news?

The index is priced in sterling, however in dollars the FTSE 100 was actually down 5 per cent over the year, owing to the decline in the pound.

Analysts at KPMG said, when comparing the performance of FTSE 100 companies, those with 70 per cent of their business abroad were up 70 per cent over the year compared to just 6 per cent for those with their businesses in the UK.

KPMG’s Yael Selfin told the Guardian: “Put in pounds and pence, this equates to a £226bn rise in the value of the KPMG Non-UK50 and a £24bn loss for their domestic equivalent.”

Furthermore, to get a better indication of the UK economy, it is helpful to look at the FTSE 250, or the 250 biggest companies in the UK, which is more dependent on the UK economy than the multinational companies represented in the FTSE 100.

The FTSE 250 fell 13 per cent in two days after the vote came in. It has recovered a little since then, but not on the scale of the FTSE 100.

The FTSE 250 ended 2016 up 3.7 per cent for the year, underperforming the FTSE 100, as domestic firms did not get the benefit of a weaker currency. Concerns about higher inflation also hurt sentiment.

Meanwhile, the FTSE Local UK index, which includes companies that generate more than 70 per cent of their revenues domestically, fell 7 per cent.

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What happens now?

So far major UK stocks appear to have defied pre-referendum predictions.

Ms Selfin, head of macroeconomics at KPMG UK, said UK shares prices also benefited from the mostly robust economic data since the Brexit vote.

She said: “The latest GDP figures point to a strong UK economy which has probably accounted for some of the pick-up in equity prices overall since the referendum.”

This means stock price gains might run out of steam if global growth disappoint, as predicted by the International Monetary Fund in October.

The values of UK-facing listed companies could also lurch lower if consumer confidence drops.