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Andy Raikes

Market Outlook

UK Outlook

Outlook
12 January 2026

By

Portfolio Manager, TT UK Equity Strategy

Latest UK economic and market outlook. 

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We continue to believe the UK equity market looks attractive, especially in the context of global equities, with valuations that are at a historically large discount to other major equity markets. This is evidenced by a market-implied cost of capital that is significantly higher in the UK than in other major equity markets, as well as a sector-neutral PE discount to global equities that is close to the widest it has been in 30 years.

However, our positive view on the outlook for UK equites is not to say we are particularly optimistic about the outlook for the UK economy, where we expect economic growth to remain relatively subdued. That said, with the uncertainty over the Budget now behind us and interest rates continuing to fall, we are hopeful that at some stage this will lead to an improvement in macroeconomic momentum in the UK, although we are not assuming this at present. Against this backdrop, we continue to run a balanced portfolio, with a beta of around 1.

Although we reduced mid-cap exposure at the end of 2024 and early in 2025, we continue to be overweight mid-caps, where valuations are particularly attractive, being at a 20-year PE low versus the FTSE100 – a market that is itself very cheap in a global context. However, in light of our view that UK economic momentum is likely to stay muted for the time being, we have become more selective about the mid-caps we own. Specifically, our mid-cap exposure is skewed to either UK domestic names that have defensive, non-cyclical exposure – including food manufacturers such as Greencore and Cranswick, as well as CVS, Chemring, IG Group and Integrafin – or to businesses that are more exposed to economies outside the UK, such as Glanbia, Glenveagh Properties, Balfour Beatty, Serco, Rosebank and Pan African Resources.

From a sector perspective, we continue to be significantly overweight Industrials. Here our exposure is predominately to Defence, defensive growth names such as Serco, Experian and DCC, and Construction. In Defence, we had significantly reduced our exposure in early summer following a very strong period of performance, but started to add back to our preferred names through Q4 as the stocks had pulled back to more attractive levels. In Construction, our holdings are mainly exposed to non-UK markets. Examples include CRH, Ashtead and Kingspan, as well as Balfour Beatty. The latter does have exposure to the UK, as well as the US and Hong Kong, but the UK exposure is almost entirely to highly visible major infrastructure projects.

Another key overweight is Mining. We had been overweight gold miners for some time, and continue to be so, but more recently we have been increasing exposure to industrial metals and are now overweight this sector too, as we anticipated an improving backdrop for these commodity prices. The key addition has been through buying a position in Rio Tinto in early Q4, to go alongside existing holdings in Glencore and Antofagasta. We also added a small position in mining services company Capital Limited, which we believe is very well positioned to capture the forthcoming upswing in mining industry capex.

Elsewhere, we remain overweight Consumer Discretionary, which again can be bucketed into either defensive growth names such as CVS and Compass Group, or businesses with predominately non-UK exposure such as Ryanair, Glenveagh and Entain.

Conversely, we are significantly underweight Energy. Over the last 12 months, the UK Energy sector has risen by over 10% in dollar terms, despite the fact that, over the same period, the oil price has fallen by over 20% and sector earnings are down by well over 25% in dollar terms. With a substantial surplus likely to build over 2026, we expect to see continued pressure on the oil price, which will likely impact earnings and could eventually see cash distributions come under further pressure. This, combined with the significant re-rating that the sector experienced last year, lead us to continue to be cautious on the sector.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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