Wealth managers, financial advisers and financial planners expect to see ‘an improvement in UK economic growth figures’, followed by ‘an expectation of rate cuts from the Bank of England’ over the next 12 months, according to research commissioned by Rathbones Asset Management Ltd.
They also signalled that clients are being driven by the effects of the recent cost-of-living crisis, to favour income over growth.
The survey, conducted in May 2024, weighted several contributing factors to the expected recovery of the UK economy and market. It also revealed that ‘a pick-up in commodities and higher energy prices’ was viewed as one of the biggest contributors to the recovery, although respondents had less conviction in ‘a weaker pound’ and ‘an increase in UK M&A’ boosting UK equities.
With UK GDP rebounding into positive territory, respondents’ views on growth were upbeat, with nearly 60% anticipating UK economic growth will rise above expectations and 29% believing it will rise in line with expectations over the next 12 months.
The research also revealed that many respondents believe the Bank of England will cut interest rates before the US Federal Reserve. Of those surveyed, 65% think the Bank of England will make its first interest rate cut in 2024 while just 34% believe the Fed will cut rates in 2024. Around 40% believe the Fed will cut in Q1 2025.
The extended period of political upheaval in the UK since 2016, coincided with a sharp decline in UK equity valuations; however, 82% of respondents believe that low valuations reflected that political risks were now “baked in” to prices.
The wealth managers, financial advisers and financial planners questioned also signalled a shift among clients, noting that more are now looking to invest for income rather than growth (88%), as the UK’s cost of living crisis continues to impact savers and investors.
For those clients seeking income, the survey showed that UK equities might be a good place to find it, with 79% of the professional investor respondents believing the next 12 months will see significant dividend growth and a further 12% still expecting dividend growth, only more modest.
Commenting on the findings, Alan Dobbie, fund manager, Rathbone Income Fund, said: “Whilst the relative cheapness of the FTSE All-Share has been apparent for some time, it is only more recently that a plethora of catalysts have fallen into place to unlock this substantial valuation discount. Better than expected economic data, renewed M&A interest, increased share buybacks and imminent interest rate cuts are all likely to play a role in restoring the fortunes of the UK market. More importantly, meaningful pension and planning reforms, designed to catapult the UK out of its growth funk, have moved right up the political agenda. If politicians can follow words with action, then investors are absolutely right to be getting excited about the prospects for the UK market.”
