With a gloomy economic outlook from the Office for Budget Responsibility constraining the Chancellor’s ability to cut taxes or boost spending in the budget, RLAM Head of Multi Asset Trevor Greetham made the following comments on the implications for UK investments:
“Trying to stimulate growth while the Bank of England is raising rates to fight inflation would be counterproductive, as Liz Truss and Kwasi Kwarteng discovered last year after their ill-named ‘Mini Budget’. It makes sense, therefore, that Jeremy Hunt’s focus today is mostly on supply side measures to encourage labour market participation and capital investment. Arguably, the export sector is most in need of help, but the room to manoeuvre is limited with both major political parties ruling out extending the Windsor Framework approach and Single Market membership across the whole of the UK. Against this backdrop, a new round of austerity is likely, starting in earnest just after the next general election.
“Economic weakness isn’t great news for investors looking to generate inflation-beating returns, but the FTSE100 could continue to outperform other stock markets if sterling trends lower and commercial property may be the only major asset class already factoring in recession after a near 20% drop from its highs, even including rents. Meanwhile, higher yields and the likelihood of weak growth with falling inflation make gilts more attractive than they’ve been in years.”
UK Commercial Property Return Index and 10 Year Gilt Yield
Source: Refinitiv Datastream as at 28/02/2023
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The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.