UBS Outlook on UK Economy for the New Year

Investing.com – UBS reflects on the UK economy as we approach the new year, summarizing the current year’s events.

Despite various forecasts predicting turmoil, analysts from the Swiss bank observed that the UK managed to stay resilient through the elections, marking the first Labour government in 14 years, in a note dated Dec. 16.

UK Market Performance

UBS noted, "For UK investors, the news hasn’t been all bad either. While the UK market has underperformed compared to the US, which has benefitted from stronger technology sectors, the FTSE still returned over 7% this year. Including the market’s healthy yield, overall returns rise comfortably into double digits."

Gilt Investments and Currency Outlook

While gilts didn’t perform as strongly as expected due to falling rates, investors in 5-year gilts didn’t incur significant losses. Additionally, the pound managed better than anticipated.

Forward-Looking Thoughts

The Swiss bank emphasized that the UK’s mood appears negative, influenced by the anticipated budget, which lacks growth and investment enhancements. However, the declared spending should support economic growth in the upcoming year. UBS advised that avoiding investment due to recession fears may not be effective, echoing sentiments from this year.

Key Lessons

The primary lesson from this year, according to UBS, is to observe politicians’ actions rather than rely solely on their statements. Investments based on campaign promises could have resulted in more losses than gains in 2024.

Lastly, UBS cautioned against equating market performance with economic conditions. Despite expectations of moderate economic growth in the UK, the FTSE, with its diverse global exposure, is positioned to generate positive returns, particularly when dividends are considered.

Interest rates are anticipated to decrease, albeit at a slower pace than in other regions, suggesting that effectively deploying cash could be a wise strategy for 2025, as it has been this year.