UK growth may yet provide a positive surprise relative to developed market peers, according to analysts at Credit Suisse.
With the nation still mired in recession and the private sector in the middle of a multi-year deleveraging, confidence in the UK economy remains hard to come by. Gilt yields may be at record lows but a dismal debt profile does not inspire optimism.
Credit Suisse's global equity strategy team propose an alternative view. Andrew Garthwaite and team suggested investors have not factored in the potential for the UK to deliver a positive growth surprise relative to other developed economies.
The team said economic surprises in the UK are now more positive than in any other region, based on manufacturing indices, retail sales, employment, investment intentions, household savings and even housing figures that are now "stabilising".
The prognosis, made last week, is not clear-cut, as subsequent data has shown.
Latest manufacturing figures released this morning point to a "near-stagnation" in Q3 GDP growth, according to data provider Markit, while last week saw the release of data revealing an unexpected widening of the UK trade deficit in Q2.
But with the government having already reined in its ambitions for deficit reduction, there is less of a fiscal drag on UK growth compared with its US or European peers, Credit Suisse said.
Closer collaboration between the Treasury and the Bank of England - the world's "most dovish" central bank, according to the CS team - is also a plus for the UK.
They pointed to a 50bps fall in bank funding costs since the Funding for Lending scheme was launched last quarter, and the new legal requirement for the Bank of England's Financial Policy Committee to target economic growth as well as stability in its actions.
"We continue to believe that cooperation between fiscal and monetary policy is key to the recovery in the developed world - and in the UK, this cooperation is better than for any other major country," Garthwaite said.
Elsewhere, they view the pound as one of the cheapest non-euro European currencies and a potential safe haven play.
While sterling is close to fair value using OECD purchasing power parity estimates, other safe haven currencies - such as the Australian dollar, Swiss franc and Norwegian krone - are overvalued by around 50%.
The virtues of a stronger currency may be up for debate in an environment of competitive devaluation, but Credit Suisse is also positive on the outlook for UK equities, remaining overweight UK stocks in a global portfolio.
Some 81% of UK sectors trade at a discount to global sectors, according to the global team, with the FTSE 100 "not as overbought" as other major indices and cheap relative to the EuroStoxx 50.
With QE favouring "real asset plays", favoured sectors include housebuilders, despite such stocks looking overbought in the short term, and UK REITs, a play on negative index-linked bond yields.
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined