Merian Global Investors head of UK equities Richard Buxton is “extremely cheerful” on the outlook for the UK economy, putting him at odds with the Bank of England’s “gloomy prognostications”.
Speaking in a video interview on the Hargreaves Lansdown website, Buxton said the economy will benefit from a bounce in UK business confidence, after shrugging off three years of being depressed by the absence of a government and concern over the threat of a Jeremy Corbyn-led administration.
An improvement in business sentiment since the general election led the Bank of England to keep interest rates at 0.75% at last week’s monetary policy committee (MPC) meeting. But the MPC has predicted the UK economy will grow at just 1.1% over the next three years.
‘I couldn’t disagree more with gloomy prognostications’
Buxton said: “I’m extremely cheerful, I couldn’t disagree more with the kind of gloomy prognostications from the Bank of England that, you know, it’s going to be incredibly sluggish and difficult.
“I think people haven’t remembered that we haven’t really had a government that could govern for the last three years, conceivably the last five; we now have a government that can actually govern and that has an agenda, that has a plan, and that’s going to spend money, that’s already said by how much it’s going to raise the minimum wage in each of the next five years.”
Buxton believes global investors will return to the UK as economic growth accelerates and multi-national companies benefit from a cheap sterling.
‘Extraordinarily positive environment for the UK economy’
He said detractors point to the fact a trade deal is still to be negotiated, but behind closed doors neither side wants a difficult cliff-edge Brexit. Equally, he added negotiators won’t get everything done in 11 months, so the outcome will probably be a traded goods deal.
“I think that even if there are some companies that hold back this year, come 2021 and a recognition that actually the world hasn’t stopped, growth will accelerate. And yet, there are economists out there forecasting a recession in 2021. I couldn’t disagree more, I think this is going to be an extraordinarily positive environment for the UK economy.”
Buxton has previously been wrong on the UK economy with his 2018 forecast of 2% growth proving optimistic compared to the 1.4% delivered.
Real wage growth set to rise
Buxton singled out Whitbread, owner of Premier Inn, as an example of a stock that could see a Brexit bounce over the next two or three years after a difficult 2019.
“I met with them in December and… they said obviously they employ a lot of people on the minimum wage and fully accepted that, ‘Oh yeah we’re just budgeting that pay is going to go up 5% per annum forever and it’s kind of how we offset that through productivity gains’. Well, if that’s indicative of the sort of real wage growth that people are going to be getting, again, that’s pretty supportive for activity.”
UK election inspires domestic equity sales
Latest statistics from the Investment Association, published on Thursday, revealed UK All Companies was the best-selling sector in December, pulling in a net £772m during the month, its highest monthly total since June 2013 and the first time it has topped the monthly sales table since March 2017. For the year, however, net total sales for the sector amounted to -£450m.
The UK Equity Income and UK Smaller Companies sectors attracted £229m and £279m, respectively, during December. But for the whole of 2019 sales were -£454m and -£379m, respectively.
