The Weekly Strategy Report (September 17, 2018)Contributor Multi-Asset Solutions
- Ahead of party conference season and amidst evidence of further fissures within the UK’s main political parties, we review the outlook for the UK economy and major asset classes.
- Brexit effects have already taken a toll on the economy’s growth potential, via reduced immigration and slower investment growth, yet the labor market looks healthy and GDP growth momentum is improving.
- However, consumer balance sheets look brittle and the low household savings ratio leaves the economy vulnerable to retrenchment in the face of shocks.
- We have a low-conviction base case in a soft Brexit scenario but expect the path to such a resolution to be bumpy, with sterling feeling the brunt of the impact. We are neutral sterling and Gilts. UK equities are under-owned, appear to be good value and offer appealing sectoral composition, but their deeply negative correlation with the pound prohibits a positive stance.
EXHIBIT 1: THE UK household leverage ratio remains extended
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