Budget shock or Budget relief?

Why you should listen to the interview: If you want to make sense of the Budget noise and understand what genuinely matters for UK equities, this episode cuts through the drama. Hear experienced managers explain valuations, where they’re finding opportunities, how overseas investors view the UK and why the market may still be undervalued.

This interview was recorded on 3 December 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.

Interview highlights:

The initial Budget reaction

“Our first reaction when the headlines dropped last Wednesday was one of relief. We’ve had weeks, months of speculation and warning and kite flying about how bad things were gonna be. The market consensus was that there was a £20 to £30 billion fiscal hole that was gonna have to be filled here. So when we saw that headline come out – albeit a little earlier than we expected – that the Chancellor actually had £22 billion of headroom after her budget measures, there was definitely a sense of relief within our team and within markets. We felt that was a big enough number to keep the bond market happy. And that’s what we saw play out markets. We saw stocks and bonds both rallying a bit in the immediate hours after the Budget.

“Obviously in the days since the Budget, we’ve now learned that maybe the Chancellor didn’t have as big a fiscal hole to try and escape from as many of us believed. It wasn’t such a big Houdini act she was carrying out. She had £4 billion of headroom according to the OBR before she went on air on November 4th to warn that, or to kind of secretly warn that, perhaps income tax rates may have to rise. So I think, you know, given what we’ve learned since, it’s quite a tricky one for markets to digest positively – we can think whether the UK’s fiscal position was much stronger than any of us realised.”

UK valuations and market attractiveness

“As UK managers, it’s lovely to be in the circumstance where the FTSE All Share has had such a good run, it’s up over 20% this year. But as you alluded to, the valuation still remains very attractive. Trades on under 13 times forward earnings that compares to about 23 times for the S&P 500. Even if you adjust for the different sector mix between the two markets still the UK still looks very cheap. As we have been constantly reminded over recent years. The evaluation is only one part of the story. We need to look at other things as well.

“And I think something that is sometimes a bit overlooked is the diversification benefit that the UK market can offer. Because of its high weightings and sectors like consumer staples and healthcare, it has this very defensive value oriented tilt, which makes a pretty useful hedge against the more gross the US market or the more cyclical European market. We’ve seen the benefits of this play out just over recent years.

“And even the domestic part of the market, we think FTSE 250 is pretty attractive at the moment. Yes, there’s challenges in the economy, but you know, mid-caps are trading at discount to large-caps. That’s a relatively rare occurrence. We think parts of the budget were pretty disinflationary, so there shouldn’t be anything to stop the Bank of England keep cutting from here. So that could be a powerful tailwind for that part of the market as well.”

Opportunities post-Budget

“Back in 2021, we had 13% of our fund invested in FTSE 250. Today, it’s almost a quarter. We’ve been adding to that recently. We’ve got a big watch list of mid-cap stocks. As I said, they should benefit if inflation and interest rates keep trending lower. I would highlight that, you know, we’re not macro investors, we’re very much stock pickers, but we do think it’s important to be aware of the economic backdrop. We do always want to be trying to invest with the wind at our back rather than into headwinds.

Reallocating to the UK

“Regarding the UK performance this year – we’re up 20% odd, 20% investing in this market that nobody wants to touch. Look at the press at the moment – again, this is press, this is noise, this isn’t fact – there’s definitely greater jitters around valuations within the US. Think about their political environment, think about their tech environment. There’s a lot going on in the world and yet we seem to afford valuations to US businesses that are stratospheric compared to ours. They are different businesses, they are world transforming businesses, but you can create bubbles.

“Now, I’m not here to say there is a bubble in the US market, I’m biased, but I do think from a diversification point of view, UK investors with UK assets, UK liabilities, they should be thinking about the risk that that’s appropriate in their portfolios. And if you think about it in those terms, there is an argument to be thinking about actually, is it appropriate to be reallocating some of those funds to the UK?

“Now it doesn’t take much because the amount of money that’s shifted across, you’ve only gotta have a little bit of money coming back into the UK and suddenly the UK’s outperformance in the last three years will continue into next year because it won’t take much money to start coming back when you aggregate that with the overseas money that is seeing the opportunity within the UK.”

Conclusion: Despite the speculation around the Budget, the UK market remains far from the doom-and-gloom narrative often seen in the headlines. With resilient large caps, improving mid-cap opportunities and ongoing overseas interest, the outlook may be brighter than many assume.