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UK

UK Equity Market Returns             Q1          LTM

FTSE 100 (Largecap)                        9.5%       7.7%

FTSE 250 (Midcap)                           9.8%       1.0%

FTSE Smallcap (ex Inv. Trusts)        5.1%     - 3.1%

Summary

  • BoE revise UK economic growth higher
  • UK jobs market shows continued strength
  • Hammond upbeat on economy & public finances
  • UK equities rally sharply

Bank of England (BoE) revise 2019 UK economic growth higher. The UK economy slowed during the fourth quarter of 2018 as Brexit uncertainty weighed on business investment, however economic momentum has picked-up at the start of the year according to the BoE. First-quarter GDP growth is expected to accelerate to +0.5%, from 0.2% pace in the fourth quarter. The BoE revised higher its 2019 growth forecast to +1.5% from +1.2% previously. The BoE cited better-than- expected growth in the US, Eurozone and China as contributing to its more optimistic outlook on the UK economy. The Office for National Statistics (ONS) confirmed that the UK economy grew at +1.4% in 2018, the lowest rate for several years however very respectable given the Brexit uncertainty.

The UK jobs market, the bedrock of the UK economy, shows continued strength. The unemployment rate fell to its lowest level in 45 years as employment rose by 180,000 in the first three months of the year according to the ONS. The overall level of employment hit a record 32.7m or 76.1% of the working age population. Wages rose at the fastest rate in a decade, rising +3.5% year-on-year in the first quarter, the biggest jump since the global financial crisis. Anxiety over Brexit has deterred some businesses from expanding capex; however, it has not hindered demand for workers as businesses continue to grow. Employers plan to increase rather than reduce their workforce with a net balance of 16% looking for more permanent workers in the near future, according to the Recruitment and Employment Confederation.

Chancellor of the Exchequer issues positive Spring Statement. Philip Hammond highlighting that the UK economy has been “remarkably robust” and has defied expectations since the vote to leave the EU in June 2016.  Hammond also promised a £26bn fiscal boost to the UK economy if an agreement was reached with the EU. Higher income tax revenues and lower borrowing costs on the national debt has reduced public sector net borrowing to 1.2% of UK economic output, down from 10% in 2010, boosting the governments fiscal firepower. The Treasury intends to wait until there is clarity on Brexit, before unleashing the extra spending power on the UK economy.

UK equities rallied over the period in line with global equities. The first quarter of 2019 saw the UK equity market recover the majority of losses from the final quarter of 2018, as investors turned bullish. UK equities remain the most attractively valued developed equity market as Brexit continues to keep international investors on the side-lines. FTSE 100 index rose by +9.5% for the first quarter of 2019, with the more domestically focussed FSTE 250 delivering +9.8%. Sterling also gained +2% for the first quarter of the year, driven by delay to Brexit beyond March 2019, fuelling hopes that a disorderly exit from the EU would be avoided. 

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