In the IMF’s July World Economic Outlook, it revised its previous forecast for UK growth in 2017 of 2.0% to 1.7%.
But some might argue that the IMF were late to the party and that plenty of UK fund selectors had already seen the writing on the wall.
Notable names like Standard Life Investment’s Bambos Hambi, Rathbone’s David Coombs and F&C multi-manager co-heads Rob Burdett and Gary Potter were already retreating from the UK before and following the general election.
Last Word Media research compiled over the second quarter reinforced this extreme bearishness toward UK equities among UK fund selectors.
The research revealed that UK fund selectors were broadly in line with their European counterparts across all asset classes and strategies, with a few notable exceptions, one being UK equities.
After two neutral quarters, sentiment on UK equities turned sour, with over one-third of respondents who were polled in the second quarter, reporting that they expect to cut their weightings.
The data also revealed that fewer investors are willing to sit tight in their UK equity income investments, with a quarter of the surveyed UK selectors saying they want to decrease their allocation.
Senior economist at Axa Investment Managers David Page did not find the IMF’s revision unnecessarily harsh, arguing that it was simply picking up on the “genuine weakness” of the UK economy.
The IMF’s outlook for UK growth has now converged on Axa’s own at 1.7%, although the asset manager’s forecast for UK growth in 2018 of 1.2% is lower than the IMF’s prediction of 1.5% and the Bank of England’s even more generous estimate of 1.7%.
And worryingly still, Michael Baxter, economics commentator for The Share Centre adds that the IMF’s scaled back growth projection for the UK economy “could be made to look way too optimistic within a few days” when the Q2 growth figures land on Wednesday.
“The UK economy grew by 0.2% in Q1. Within a few days we will have data on Q2, but it may well show that the UK economy grew by 0.3% in the quarter. If that is right, then for the UK to grow at the pace projected by the IMF in 2017, it will have to see a sharp pick-up in the last half of this year.
“However, with real wages falling, and likely to carry on falling, political instability and uncertainty over Brexit is likely to have a negative impact on corporate investment, there is a good chance that the second half of this year will only see a modest improvement on the first half.”
So, “investors shouldn’t be surprised if the IMF downgrades again,” he cautions.
