20 June 2025
Jonathan Sparks
Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth
There is an irony to the recent strength in UK equities. In an economy that is struggling with a shortage of good news, UK equity markets have performed better than most. Household sentiment has had its ups and downs since last Summer, but the trend has been lower. Such is the gloom, that households are saving more now than at any time in the last 15-years (excluding the blip during Covid). Discard the brief peak in 2010 and you have to go back to the mid-1990s to see such rates of saving. There is a shortage of “animal spirits” among UK households and this is dragging down spending. For such a consumer-driven economy, that’s a big problem.
Source: UK Household Savings
Meanwhile, for investors the UK has been on trend of late. This can be attributed to a more upbeat investor view on the UK. A deal with the US that dodges the worst-case scenario in tariffs put the UK in a relatively safe space for parking investments. Plus, there is a defensiveness in the UK equities that has an appeal during times of geopolitical turmoil, especially one that drives oil prices higher.
Less encouraging are the “fundamentals”. They are not exactly dire, but the trend in analyst earnings revisions, for example, aren’t keeping up with the trend in equities prices. It seems that this is an equity market driven more by investor’s whims that a more sustainable uplift in corporate earnings. Such a turnaround is not without reach: a more upbeat household has the power to kick-start this; but currently this is not visible in the numbers and it’s hard to see what the catalyst might be.
This is why, for now, we find it hard to get too excited about the UK equity market more broadly, and still look for more selective opportunities across financials and AI adopters. We keep an open mind through, and have our fingers crossed that a likely rate cut in August can help create a virtuous circle in sentiment that could liven up the UK economy.
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