News

The latest UK unemployment figures have broken below 7%, the level previously set by Mark Carney, The Governor of the Bank of England, as the level at which the Monetary Policy Committee would consider raising interest rates. (Mr Carney has recently amended this stance with the Bank now looking at a wider range of economic factors before considering a rate rise.) This improvement in the employment market has been reinforced by average weekly earnings rising ahead of the rate of inflation, for the first time since late 2008.

Despite poor current market sentiment, which is being influenced by slowing growth in China, tensions in the Ukraine and US first quarter economic performance, the UK has been basking in a swell of improving perception. The recovery in housing and services since last summer and more recently in manufacturing has been reflected in a sharp improvement in economic growth expectations with, for example, the International Monetary Fund suggesting that the UK would see the fastest growth, at 2.9%, in the G7 group of developed nations this year.

Such optimism can, however, have a downside; one of these is the strengthening of sterling, which has breached $1.68. This may lead to rising uncompetitiveness for British exports. However, there is also some evidence that after a long period productivity is beginning to pick up. We share the optimism about the UK’s near term prospects and currently have an overweight stance to UK equities, although as with elsewhere we look for further validation that improved economic conditions are percolating into company profits.