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Andy Raikes

Market Outlook

UK Outlook

Outlook
12 April 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, particularly in the context of global equities, with valuations that remain at a historically wide discount to other major markets. However, the key development during the quarter has clearly been the sharp escalation of tensions in the Middle East. This has had important implications for commodity prices, inflation expectations and the outlook for economic activity, both in the UK and around the world.

As a result, we have become slightly more cautious on the pace of any cyclical recovery in the UK and continental Europe. Higher energy prices are likely to weigh on real incomes and business confidence, while also increasing the risk that interest rates stay higher for longer than previously expected. Indeed, markets have already begun to reprice policy expectations as higher energy prices feed into inflation, which is especially relevant for more rate sensitive parts of the economy.

Against this backdrop, we have adjusted the portfolio at the margin to reflect a less supportive backdrop. We remain balanced overall, with beta around 1, but we have become more selective in areas where earnings are most vulnerable to weaker demand, higher financing costs or ongoing energy price disruption. This is likely to be most evident in certain construction, housing and travel related names, where we have slightly reduced exposure.

At the same time, we have been adding to areas of the market where we see either defensive qualities or positive skew to the current environment. This includes selected defensive names that have been sold off indiscriminately despite resilient underlying fundamentals, as well as businesses with positive exposure to higher commodity and power prices, as well as energy price volatility.

In the latter category, we have added to holdings such as Glencore, Centrica and Drax which offer helpful portfolio balance against our longstanding underweight to the oil majors, and we have also established a new position in North Sea Oil & Gas company Serica, where the risk/reward looks very favourably skewed in the light of our expectation of higher-for-longer commodity prices following the war in Iran.

Some of the relatively defensive names we have added to on weakness include Reckitt Benckiser, which sold off sharply, and in our view unjustifiably, following its full year results, as well as DCC, M&S & Greencore. While M&S does have exposure to the more cyclical clothing market, we view the food retail business as much more defensive and therefore see the sharp sell-off post the outbreak of the war as offering an opportunity to add. Similarly, Greencore is a supplier into the resilient food retail industry and as such we also see the sell-off here as an opportunity, particularly given the significant synergy opportunity from its recent combination with Bakkavor, which we expect to be a driver of material earnings growth in the coming years.

Within Basic Materials, we have also moved our exposure in a more defensive direction. We continue to see long term attraction in industrial metals, but in the current environment we believe it makes sense to favour businesses with broader commodity exposure and more diversified earnings streams. This has informed our decision to rotate from Antofagasta, which is essentially pure-play copper exposure and has performed extremely well,  into Glencore, where the valuation remains attractive and the company offers positive skew through both its commodity trading business and exposure to thermal coal.

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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