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In This Week’s Newsletter
- Bank of England Holds Interest Rates—For Now
- Federal Reserve Hikes Rates
- UK Inflation Rises to 3.1%
- Autumn Budget Preview: Could IHT Be Scrapped?
- Is Lloyds a Buy, Sell, or Hold?
- The UK’s Most Shorted Stocks
- F&C Investment Trust Cuts US Exposure
- The Best S&P 500 ETFs for UK Investors
- The Best FTSE 100 ETFs
The Bank of England’s meeting was the star turn this week but the lack of movement on interest rates and low-key accompanying statement belied the dramatic shift in expectations on monetary policy. While the committee is still balanced six to three in favor of a hold, it’s clear from both the BoE’s messaging and derivatives markets that rates are going up, with four quarter-point rises now priced in by summer 2027, taking the base rate to 4.75%. The backdrop is rising consumer prices: This week’s data shows that UK inflation rose in August to 3.1%. Economists now expect CPI to hit 4% by early 2027, which would be double the BoE’s target.
With BoE’s next meeting a week after the Autumn Budget, we could see a rise in the cost of borrowing and the announcement of higher taxes in a short space of time. A snap election can’t be ruled out either. In the latest of his budget previews, Ollie Smith looks at the government’s options in changing inheritance tax, which brings in £10 billion a year but is paid by just 5% of estates. The current thinking is that Labour will broaden the tax to help pay for social care.
There’s one group stocks that have been beneficiaries of higher rates: banks. And among them, Lloyds Banking Group has far outperformed: Christian Mayes looks at why this domestically-focused stock, which was owned by the government for 10 years, has done so well even as the UK economy has struggled.
Also, this week we’ve updated our screen for the UK’s most-shorted stocks. Homebuilder stocks continue to be in the cross hairs, but bearish investors are also increasingly targeting a clean energy company. You can find the names here.
The great and good of the AI world have been in London this week meeting King Charles to discuss whether it’s too late to keep machines from destroying us. But one notable fund manager has been reducing his exposure to US tech giants in favor of emerging markets. “Markets can carry on longer than people expect to a point of excess, which is way beyond where we are today,” says Paul Niven, who manages F&C, the second-largest investment trust in the UK. Natalie Kenway talked to the manager about tech valuations, hyperscaler spending, and the Magnificent Seven.
As part of ETF week, we’ve looked at the best options for UK investors looking to gain exposure the US, UK, and Japanese stock markets. And we also profile exchange-traded funds that focus on UK dividends, two of which have Morningstar Medalist Ratings of Gold.
James Gard, Morningstar UK Editor
