WORRY: Angst over the UK’s lagging economic performance and its weakening place in the global capital markets is running high. But capital markets are not economies, and UK assets have continued to perform resiliently on the global stage. Sterling is the best performing major currency this year. And the FTSE 100 was the least bad global stock market last. All countries face tough competition from the tech-driven and super-sized US capital markets. UK stock and FX markets continue to punch above the country’s economic weight. And there are benefits to being a big fish in a smaller pond. With UK tech stocks more highly rated than in US (see chart).
ECONOMY: The UK economy is down but not out. The GDP growth outlook certainly lags most peers but seems set to avoid recession this year with a resilient consumer and services sector. Latest PMI’s are over 54. Whilst the most bearish growth outlooks, from the IMF and Bank of England, have been revised up. The country continues to still have some of the world’s highest inflation, at 8.7%, with a near unique mix of a generationally tight labour market and high energy costs. This is set to extend the country’s record-breaking interest rate hiking cycle. This will bring inflation down, helped by the 90% natgas and 20% ag price plunges from last year peaks.
MARKETS: The profile of UK’s capital markets in the world is similarly not as bad as it seems. New listings have slumped and UK tech-giant Arm’s decision to list in the US is disheartening. But UK stocks and Sterling have been performing decently. The country continues to punch above its weight. It’s the world’s third largest equity market, and Sterling the fourth most traded currency. The IPO drought is long standing but global. The UK stock market valuation discount to the US is large but far from total. And there are advantages to being a bigger fish in a smaller pond, with UK tech stocks commanding a ‘scarcity’ valuation premium versus US peers.
All data, figures & charts are valid as of 25/05/2023