Shaking off the underperformance

UK assets are well placed to shake off their underperformance since the 2016 Brexit vote by outperforming global assets over the next couple of years. All risky assets will continue to be buoyed by the combination of a rapid global economic recovery from the COVID-19 crisis and global central banks running ultra-loose policy for many more years. But the UK’s more favourable valuations and its greater exposure to the sectors that are likely to benefit most from the recovery, such as consumer-facing, energy and financial, suggests that equities in the UK will rebound more rapidly than elsewhere. And a further improvement in global risk sentiment and a relative rise in UK interest rate expectations may mean the pound continues to strengthen, perhaps from $1.39 (€1.15) now to $1.45 (€1.16) this year. That would take the dollar/pound rate back to within a whisker of the level seen before the 2016 Brexit vote.
Paul Dales Chief UK Economist
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