Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

It took a while getting here, but the FTSE 100 is now regularly making new record highs. The long-awaited 8,000 level got broken decisively in late April and the path to 8,400 has been short. Given the economic and political uncertainties that lie ahead it seems sensible to take stock and consider whether or not the investment case for the UK is still strong.

What is driving the market up?

Much of the FTSE 100’s recent drive northwards has been down to its high exposure to US dollar earners. The presumption that UK interest rates will be reduced sooner and faster than in America has weakened the pound versus the dollar. That inflates the value of FTSE 100 company earnings translated back into pounds. Recent estimates suggest around four fifths of the FTSE 100’s revenues come from overseas1.

An additional factor has been the oil price, which has climbed from around $77 per barrel at the start of the year to $83 today2. This will have lifted the profits of BP and Shell, which account for around 13% of the index3. Signs of an improving Chinese economy have been regularly drip feeding into the market over the past two months helping to keep the oil market buoyant.

Cancel the recession

Clearly the risks of a deeper economic downturn have faded. After shrinking by 0.3% then 0.1% in the final two quarters of last year, the economy expanded by 0.6% in the first three months of 2024. That’s the fastest rate of growth the UK has seen in two years4.

In its most recent assessment of the economy, the OBR forecast growth of 0.8% for 2024 as a whole, aided by a fall in interest rates and recovery in real household incomes5.

While the impact of robust wages growth remains a concern, inflation continues to head back to the Bank of England’s 2% target. Annual inflation dropped a further 0.2% in March to 3.2% and is anticipated to have fallen again in April partly due to a cut in energy bills. The Bank of England’s expectation that inflation will be back around 2% imminently still looks plausible6.

Falling inflation, the prospect of lower interest rates plus modest economic growth add up to a positive backdrop for both UK shares and bonds.


Corporate buyers have been arriving in force after an extended lull. According to data from Dealogic, which tracks mergers and acquisitions globally, the value of bids for UK companies has hit its highest since 20187.

A revised £34 billion bid for Anglo American from BHP and a cash offer for IDS (Royal Mail) from its largest shareholder are two of the latest examples of takeover fever now starting to spread through London. Both attempted deals are important because they signal that informed buyers still see the market as cheap.

Other deals agreed so far this year include bids for the cyber-security firm Darktrace and the paper and packaging company DS Smith.

The trigger for more takeovers could come from a drop in interest rates. The Bank of England has guided for a first cut in interest rates this summer. That would represent a significant turning point for dealmakers, who have had to contend with rising rates ever since December 2021.

Is the market still cheap?

The UK stock market has lagged behind since the Brexit vote of 2016, but is it still undervalued versus other markets after this latest revival?

Index Forward P/E Dividend Yield Price-to-Book Ratio
MSCI United Kingdom 11.5x 3.7% 1.9x
MSCI Europe ex UK 14.1x 3.0% 2.2x
MSCI North America 19.9x 1.5% 4.4x

Source: MSCI, 30.4.24

Comparisons suggest the UK stock market is still cheaper than markets in Europe and the US, but the gaps have closed somewhat over the past couple of months. Having said that, the UK continues to look more attractive on the basis of each of the measures shown above. Interestingly, the dividend yield on UK shares has returned to being higher than the inflation rate.

The outlook for corporate profits – a critical determinant of market fortunes over the longer term – remains positive too. As a guide, the MSCI United Kingdom Index, which covers approximately 85% of the stock market, traded on a forward P/E of about 11.5 times earnings and an historic P/E of around 12.5 times at the end of last month. That implies corporate earnings growth of around 8% over the course of the next 12 months.

Investing ideas in the UK

Fidelity’s Select 50 list of favourite funds caters for investors seeking an income or growth or a combination of the two. The list currently has three actively managed UK funds and two ETFs tracking UK indices.

The FTF Martin Currie UK Equity Income Fund is actively managed by Ben Russon, Will Bradwell and Joanne Rands out of Leeds. Its objective is to generate an income higher than that of the FTSE All-Share Index plus investment growth over a three to five year period after fees and costs.

Among the fund’s 49 investments are holdings in some of the UK’s largest dividend payers, including Shell, AstraZeneca and Rio Tinto, although it is invested in some medium sized companies too – Cranswick, PageGroup and  Victrex for example. The fund pays a quarterly dividend and currently yields approximately 4.6%, an amount that is not guaranteed8.

The Liontrust UK Growth Fund is another actively managed Select 50 choice. It seeks to invest in companies with a durable competitive advantage that allows them to sustain high levels of profitability for longer than the market expects. Current large holdings in its 45 stock portfolio include Shell, Unilever, BAE Systems and Diageo9.

The Vanguard FTSE 250 UCITS ETF is one of two passive UK funds on the list. Fidelity’s experts like this fund due to Vanguard’s expertise in index tracking, a low ongoing fund charge and the fund’s focus on medium-sized companies, which have produced good long-term investment returns.

The FTSE 250 is currently home to many established companies with the potential to deliver further good growth. Examples that frequently feature among the holdings of actively managed UK equity funds include: Games Workshop and the instrumentation and software company Spectris.  These are among the top-10 largest constituents of the FTSE 250, along with Polar Capital Technology Trust and Greencoat UK Wind – two of the most bought investment trusts at Fidelity over the past year.

As at 30 April
2019-2020 2020-2021 2021-2022 2022-2023 2023-2024
FTSE 100 -17.1 22.2 12.4 8.2 7.7

Past performance is not a reliable indicator of future returns.
Refinitiv, total returns from 30.4.19 to 30.4.24. Excludes initial charge.


1 FTSE Russell, 18.10.22
2 Bloomberg, 14.05.24
3 FTSE Russell, 30.04.24
4 ONS, 10.05.24
5 OBR, 06.03.24
6 ONS, 17.04.24
7 FT, 12.05.24
8 Franklin Templeton, 30.04.24
9 Liontrust, 30.04.24

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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