The Autumn Statement: Initial impact on UK equities

David Goldman |25-Nov-2016

Highlights of the main announcements from the Autumn Statement, the immediate impact on markets and our outlook for UK equities.

Chancellor Philip Hammond’s first Autumn Statement is unlikely to put an end to the continued market volatility. The backdrop to the speech is prolonged uncertainty due to Brexit negotiations, with UK growth under pressure and higher inflation following sterling’s depreciation.

The statement marked the first step in the government’s signalled shift towards using fiscal policy to boost growth, with the focus being on increases in spending on infrastructure, housing and research & development. While these projects will help UK growth, the spending commitments announced so far are limited in scale as the chancellor appears keen to keep plenty of firepower should growth deteriorate more than expected over the next 12 to 18 months. Consequently, his statement had an underwhelming impact on the market as a whole, with no significant sector reaction nor impact on sterling.

“…it is crucial to focus on identifying well-managed, cash generative companies that can succeed in the medium and long-term”

There is nothing in the statement to significantly change our view of the world. Markets continue to be dominated by significant political and economic events creating an ever more complex, uncertain and volatile environment in which to invest. Given this backdrop, which is unlikely to change anytime soon, we believe it is crucial to focus on identifying well-managed, cash generative companies that can succeed in the medium and long-term. We expect that the bouts of volatility that will undoubtedly persist going into 2017 and beyond will continue to provide opportunities to buy these companies at attractive prices. Selecting these advantaged companies and being disciplined about avoiding companies where we believe balance sheets are stretched or where there are structural challenges is key to meeting investors’ income requirements over the longer term.

David Goldman
co-Fund Manager of the BlackRock UK Income Fund
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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 24/11/2016 and may change as subsequent conditions vary.

All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

Investors in this Fund should understand that capital growth is not a priority and values may fluctuate and the level of income may vary from time to time and is not guaranteed. Where some or all of the fund's charges are taken from capital rather than income, this will increase yield but decrease the potential for capital growth. Investment risk is concentrated in specific sectors, countries, currencies or companies. This means the Fund is more sensitive to any localised economic, market, political or regulatory events. Smaller company investments are often associated with greater investment risk than those of larger company shares.

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