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Andy Raikes

Market Outlook

Q2 UK Outlook

Outlook
12 July 2026

By

Portfolio Manager, TT UK Equity Strategy

Latest UK economic and market outlook. 

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Global equity markets have become increasingly polarised, with areas directly exposed to AI having performed particularly strongly, while other areas have largely traded sideways. Consequently, despite global equities rallying sharply over the past few years, valuations in the UK and Europe remain at relatively depressed levels. Indeed, the UK market continues to trade at a near record valuation discount to global equities, based on market-implied discount rates and more traditional valuation metrics.

From a macroeconomic perspective, the situation has become more uncertain over recent months. While the sharp increase in energy prices following the conflict in the Middle East has largely unwound, the episode nevertheless pushed back expectations for an economic recovery in both the UK and Continental Europe. Markets moved from anticipating further interest rate cuts to pricing in the possibility of higher rates, reflecting concerns that elevated energy prices could feed through into inflation.

Although we believe these interest rate expectations may ultimately prove too hawkish, the recent shift has nonetheless reinforced our cautious stance towards domestic cyclical stocks and sectors in the UK. In addition, the UK now potentially faces a prolonged period of political uncertainty. Investors, businesses and consumers in the UK must all contend with a significant degree of uncertainty around future policy direction ahead of the leadership change, the Labour Party conference and the Autumn Budget. In our view, this is likely to remain an overhang for both UK economic activity and investor sentiment towards domestically exposed stocks within the UK market over the coming months. That said, this caution on domestic cyclicals does little to diminish our enthusiasm for the relative merits of the broader UK equity market, which offers compelling value and continues to be dominated by internationally exposed companies.

Against this backdrop, we continue to run a balanced portfolio with a beta of around one. We continue to believe UK mid-caps offer compelling long-term value and are overweight this part of the market. However, we continue to be selective about our mid-cap exposure, being focused on businesses with either defensive domestic characteristics or significant international exposure. Reductions we made earlier in the year in more rate sensitive domestic cyclicals have, in our view, been justified by the deterioration in the macro environment.

From a sector viewpoint, we are overweight Consumer Staples, having added recently to names where weakness appears disconnected from underlying fundamentals, including Haleon, Tesco and Greencore. We have also increased exposure to healthcare by adding to AstraZeneca and Convatec and new holding Uniphar, where we see attractive valuations supported by strong earnings visibility. We also remain overweight Industrials, where our exposure is focussed on construction and defensive growth support services, as well as selective defence names.

Within Basic Materials, we remain overweight, although the composition of that exposure has evolved. We have reduced industrial mining exposure following strong performance, leaving us broadly neutral across the diversified miners. However, we retain a significant overweight in Glencore, which we believe continues to offer an attractive valuation alongside differentiated exposure through its commodity marketing business and thermal coal operations. We also remain overweight precious metals producers, although to a lesser extent than previously following profit taking during the quarter.

Conversely, we remain significantly underweight Energy. While the conflict in the Middle East temporarily supported oil prices, the subsequent correction has reinforced our longstanding view that the market remains well supplied. Strong US exports and weaker Chinese imports have helped offset much of the disruption to global supply from the closure of the Strait of Hormuz, leading oil prices to retrace more quickly than many investors expected. We therefore continue to believe the long-term fundamentals for the sector remain relatively unappealing.

Overall, while the macroeconomic backdrop has become more uncertain, we continue to see compelling opportunities across UK equities. Valuations remain attractive and we believe our focus on businesses with resilient earnings, strong competitive positions and clear valuation support leaves the portfolio well positioned to navigate an environment of slow economic growth and heightened political uncertainty.

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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