There are pockets of opportunity in the UK’s investment markets despite ongoing challenges to the economy. Britain has shown some resilience in the face of a weakening labour market, slow economic momentum and high fiscal debt. Robust savings have helped offset these headwinds, and the economy – although slowing – has continued to grow.

However, government borrowing grew to £18 billion in August – a five-year high and well above forecasts – meaning Chancellor Rachel Reeves has a difficult task trying to plug the fiscal gap in her upcoming Autumn Budget. 

We are currently neutral on UK equities, mindful of the current challenges. Our strategies however favour US equities, buoyed by solid earnings and the growth potential of artificial intelligence.

The investment team at Coutts still see attractive opportunities in the UK though, which is reflected in our positioning. Our investment approach has benefitted from increasing our allocation to pound sterling, which has since strengthened against the US dollar.

UK government bonds (gilts) have been volatile this year, with 30-year yields reaching their highest level since 1998 (meaning prices fell). This isn’t unique to the UK though. Similar trends are evident across developed markets amid elevated fiscal debt.

Fahad Kamal, Chief Investment Officer at Coutts, “Our government bond holdings tend to be concentrated closer to the 10-year maturity mark, so we haven’t been hugely affected by this. Despite the recent rise in gilt yields, we continue to value bonds for their diversification benefits and reliable income.

“In the current climate we believe further diversification is prudent, which is why we have an exclusive liquid alternatives fund within our more defensive portfolios.”

The fund is designed to deliver stable returns independent of traditional market movements and has been beneficial, outperforming global government bonds so far this year.

Fahad adds: “We remain vigilant and will continue to monitor the UK market – indeed all markets – in the run-up to the Chancellor’s Autumn Budget and beyond.”

It’s worth noting that, while headwinds persist, so does the potential for opportunity. Despite the Chancellor’s formidable tasks, we may well see the resilience that has characterised the UK economy this year continue.

Over longer periods of time (five years or more), investments such as stocks, shares and funds, have the potential to give you higher returns compared to cash savings. But the value of investments can fall as well as rise. There is a chance you may get back less than you put in. Eligibility criteria, fees and charges apply. Past performance is not an indicator of future performance and should not be relied on as such. You should continue to hold cash for your short-term needs.

This article should not be taken as advice.