No major surprises in the UK budget outlook improving

March 9, 2021

2 mins

Jeffrey Sacks

Head of EMEA Investment Strategy

SUMMARY

The UK's vaccine rollout is proceeding apace, while fiscal stimulus remains in place. Given the UK equity market's bias towards cyclicals and value, we see opportunities.

The outlook for UK equities remains positive. A growth recovery is supporting earnings, low rates are good for valuations, and the wide yield gap with fixed income is encouraging inflows.

UK equity offers cyclical exposure, value and high dividend yields. These are features that we are favour globally right now.

Sterling is well underpinned. Valuation is undemanding, positioning is not over-extended and there is pent-up demand for UK assets. The currency’s attractions could grow in the coming weeks as the challenges relating to the UK’s EU exit slowly ease and as the country’s rapid COVID vaccine rollout progress continues.

The UK’s 3rd March budget struck a balance. On the one hand, the UK is extending immediate emergency support measures and medium-term growth initiatives. On the other, it has set out an early roadmap for long-term fiscal retrenchment. There were no major surprises. Equities and Sterling were unchanged on the day. Gilts weakened, in line with global weakness today in sovereign bonds. The rise in gilt yields also partly discounts the earlier growth pick-up expected by the UK government and the heavy issuance outlook of £296 billion for the 2021-22 financial year.