October was a tough month for UK equities with the FTSE 250 falling within 2% of the “mini budget” lows seen not seen since Autumn last year, alongside a continued rise in bond yields.
Market weakness was widespread as the reality of higher for longer yields continued to be factored into asset prices. US ten year borrowing costs approached 5% on an intraday basis and German Bund yields rose above 3% for the first time since 2011. Interestingly government debt in the UK was less effected in the sell off as spreads tightened.
Inflation data in the UK showed that the decline in price growth has temporarily stopped. However, more recent shop price data also released during the month pointed to a further step down in price growth which should bode well for the next few months of headline inflation data where a retrenchment below 5% is anticipated. Trading updates from the domestic banks also pointed to a very benign backdrop for consumer credit deterioration which further bolsters the outlook for consumers in our view.
The IMF released their updated economic growth forecasts which has the UK economy underperforming all G7 peers in 2024. However, this forecast assumes a peak Bank rate of 6%, far lower than market implied expectations of 5.25% and does not incorporate the recent upward revisions to GDP data in the wake of the pandemic. All other things being equal, these assumptions would suggest that the IMF forecasts look far too pessimistic.
INVESTORS COMMITTED TO UK EQUITIES
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The Leeds Collective
Common sense investors committed to UK Equities.
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