The UK’s economics future and top stock picks

On the 22nd of May 2024, Prime Minister Rishi Sunak called for a general election on July 4th. During their recent campaigns, Sunak and Chancellor Jeremy Hunt have emphasised their success in stabilising the economy - particularly bringing inflation from 11.1% when he was elected in October 2022, to now 2.3% in April 2024. This blog will also explore stock opportunities emerging from both the upcoming election and the current state of the global economy. 

Inflation - How does the UK measure up against the eurozone and the USA 

Chancellor Jeremy Hunt emphasised that the UK’s inflation rate is now lower than both the eurozone and the United States; which had inflation rates of 2.4% and 3.4% respectively as of April 2024. Inflation has been falling in the UK since 2022 and is now closer than ever to the Bank of England’s target rate which sits at 2%. The April inflation figures show a fall of 0.9% from March, highlighting the success that Rishi Sunak’s economic policies have had on the UK economy. However, it is important to note that although inflation has decreased, due to sticky prices, consumers are still burdened by higher prices. 

Forecast for Economic Growth

Jeremy Hunt has also pointed to the International Monetary Fund’s (IMF) forecast, which predicts that the UK economy will grow faster over the next six years than those of France, Germany, Italy, and Japan. The IMF expects the UK’s GDP to increase by 8.8% by the end of 2029. While this is good news for the UK and the conservative party, it is important to note that it is a forecast and as a result, there is a large degree of uncertainty. Other organisations such as the Organisation for Economic Co-operation and Development (OECD) predict the polar opposite for the UK - they believe that the UK will have the worst growth in the G7. The main takeaway is that forecasts point to a bright future, but the forecasts aren’t reliable due to the fluctuations as stated above.  

The Effect on Living Standards

When being questioned on living standards, Hunt claimed that they had fallen more in Germany, Austria & Sweden compared to the UK. The Treasury backed this by referring to the OECD’s gross disposable household income data from mid-2022 to the end of 2023. However, doing a deeper dive by taking data from the end of 2019 to the end of 2023, shows the UK performing significantly worse than these countries and below the G7 average. The IMF has also confirmed that for the second year in a row, Britain's households will endure a second year without an improvement in their living standards in 2024 due to the effects of high inflation. 

Foreign Direct Investment

Jeremy Hunt has also highlighted that the UK has attracted more FDI than any other country besides the US and China since 2010 - and the data supports this. Data from the Department for Business and Trade shows that the UK has attracted £498 in Greenfield FDI from 2010 to 2022. Greenfield FDI is a type of direct investment in which a parent company creates a subsidiary in a different country building its operations from the ground up - think tech giants like Microsoft, Google, Amazon, and car manufacturers like Nissan. For example, Microsoft has invested heavily in the UK, particularly in data centers to support its Azure cloud services, aiming to enhance the UK’s digital infrastructure. Also, Nissan has announced substantial investments in their Sunderland plant to support their ongoing production of electric vehicles - including developing their new production lines and expanding the plant’s capabilities. However, other metrics, such as those from the World Bank, suggest the differences between the UK and other major European economies are not as large as we think. 

Top Stock Picks

1 - British American Tobacco (BAT)

BAT (LSE: BATS) has been trading near its five-year low, presenting a potential value opportunity. Despite the challenges of declining cigarette sales, regulatory pressures, and substantial debt, BAT continues to leverage its premium brands and significant pricing power. With a dividend yield close to 10%, it is a strong pick

2 - Coca-Cola HBC 

Coca-Cola HBC (LSE: CCH) sticks out due to its solid financial performance and growth prospects. The company has seen consistent revenue and earnings growth, with a 10.7% increase in net sales revenue to €10.2 billion last year. The dividend yield of 3.3% and a forward P/E ratio of about 13 make it an appealing investment, especially given its exposure to emerging markets, with rising consumer demand, particularly within Africa.

3 - QinetiQ Group 

QinetiQ Group (LSE: QQ.) saw a share price slump after disappointing financials but remains fundamentally strong. The defence and security technology company has a robust book-to-bill ratio (which is just a simple calculation that gives you an indication of how well your business is doing) and is projected to see earnings growth of 11% annually over the next two years. With a forward P/E ratio of just 11.1 times, it is cheaper than other defence stocks like BAE Systems and Rolls-Royce, presenting a great investment opportunity in the defence sector.

And that is all for this blog! We have covered the UK's political uncertainty and how this is going to affect the economy, along with the top-performing stock picks! Remember to only invest what you can afford to lose, and on that note - Happy Investing!