It is possible that that data this week will once again show UK inflation on the rise, possibly further delaying any cut in interest rates. The Bank of England however predicts that inflation will halve to around 2% over the coming months, probably still allowing it to start cutting later in the year. Rate cuts should be positive for investors as the cost of borrowing is reduced for both businesses and households, whilst also making returns on risk-free assets a bit less attractive.
No interest rate cuts are needed to buoy US markets though, with the S&P500 Index closing above 5000 points for the first time. The UK market continues to lag and the FTSE100 remains down year-to-date. Whilst it is easy to point to the higher weighting of technology businesses in the US as the principal reason for its outperformance, it will not stop wider questions that surround the current demise in confidence towards the UK stock market and the businesses listed on it.
In the past few years, a number of UK companies have chosen to sell their shares in the US, with the Cambridge-based ARM one of the most recent. The microchip designer has seen its share price soar since its float in September, pushed higher by recent hype surrounding artificial intelligence, and at current levels it would only be valued at less than three UK listed businesses – AstraZeneca, Shell and HSBC.
Warnings sounded last year that the London exchange is being sucked into a ‘doom loop’ where valuations are low, liquidity is reducing, and the pool of UK-listed companies shrinking. Whilst there is undoubtedly a huge amount of apathy towards the UK stock market at present, valuations remain attractive, and my hope is that it isn’t too late to turn things around.
Please note that the value of investments and the income from them can go down as well as up and you may not receive back all the money invested. Past performance is not a reliable indicator of future results. Any views expressed are those of the author.
