Despite recent cuts in interest rates, Bill Mott, manager of the Credit Suisse UK Equity Income fun...
Despite recent cuts in interest rates, Bill Mott, manager of the Credit Suisse UK Equity Income fund, predicts the UK economy will continue to slow.
Mott believes the production side of the UK economy is now so small that any pick-up in global activity will have only a minimal impact on the UK economy as a whole.
As a result, he says, future economic growth will be driven by public sector spending.
However, the current round of public spending appears to be having little effect other than to increase public sector wage inflation, Mott notes.
'Public sector spending will come at the price of a growing public sector financial deficit and this will ultimately cause its own problems,' he warns.
Consequently, Mott believes the long-term outlook for UK growth is deteriorating. He expects to adopt a more cautious approach at some time in the future, unless US fiscal and monetary policy creates rampant inflation.
However, Mott says the long-term possibilities have never been so varied and he will try to maximise any short-term advantage he can take from day-to-day market trading.
'Future significant outperformance will depend on getting the timing of the big-picture changes correct,' he notes.
Richard Buxton, head of pan-European equities at Schroders, believes global economic data and some better-than-expected corporate results have helped improve sentiment in the UK market.
In addition, he says, the Federal Reserve has indicated interest rates will remain low for as long as it takes to engineer a recovery and the Bank of England has recently cut rates again. Both of these factors have led to a change of mood in equity markets that should continue in the months ahead, he says.
However, Buxton feels there needs to be a rebound in corporate sector confidence and capital expenditure for any rally to continue over the longer term.
'With some uncertainty out of the way and recent cost-cutting exercises having strengthened company balance sheets, we may see some evidence of this happening,' he says. 'Furthermore, at current valuations, many of these concerns are priced into UK shares. Increased M&A activity and directors' share purchases are also positives.'
Peter Brewster, head of market research at JP Morgan Fleming, says the UK stock market has been moving sideways in the past month as investors search for evidence of a sustainable pick-up in economic activity and corporate profitability.
Because of the lack of any firm evidence of a pick-up in either, Brewster says investor enthusiasm that the market will continue rising over the short term has dampened, although more people think it will be higher in six months' time.
He says: 'Investors are clearly not certain the tide has turned. The stock market we saw between March and June, when the FTSE 100 gained some 25% from its 12 March low, had a positive effect on investor sentiment but the big question is whether this can be seen as the beginning of a recovery.'
Cost cutting in company balance sheets.
Many negatives already priced into the market.
Sentiment has been improving.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till