The UK Economy, an Uphill Struggle

The UK has suffered its fair share of problems since the credit crisis.  In 2010, the Conservative Party was elected as they vowed to sort out the huge financial deficit which built up from years of frivolous spending.  

Huge cuts were promised as people grimaced at the notion of heavy austerity for years to come.  However, after just under three years in power, only 30% of the original cuts have come to fruition.  This has caused deficit levels to miss forecasts weakening the economic growth outlook for the next few years.

Recently, Moody’s, one of the three major rating agencies downgraded the UK from AAA to AA1 and for many this was no surprise.  The UK has one of the highest budget deficits as a percentage of GDP in the whole of the Eurozone.  Furthermore, Public Debt to GDP is at 88.7% and historically this has been below 40% for a AAA rating.  As demographics start to change, the world’s baby boomers weigh on public sector spending.  There may be no way back for many developed nations to the prized AAA rating, only two major countries retain this now; Australia and Canada. 

One way the UK can reduce the piling debt levels is through inflation.  With slow growth forecasted for the coming years it may be the only option.  As the world restructures and deleverages it is important for investors to select the correct asset classes and economies to invest in.  Certainly, the UK Economy is not high on my list, however this does not mean equities listed on the London Stock Exchange are ruled out. 

Of the FTSE100 companies, around 80% of the revenue is obtained from overseas and with some of the largest and most profitable companies listed in the UK, I always maintain exposure to this key market.

A few examples of top UK Equity funds are Liontrust’s Special Situations (for the more aggressive investors) or Royal London’s UK Equity Income which have a great history of selecting  the top UK listed companies.