With the UK economy continuing to recover from the pandemic and growth forecasts revised upwards, Jonathan Sparks, Chief Investment Officer, UK & CI, HSBC Private Banking looks at the opportunities it presents for investors.
With the end of the Brexit transition period behind us and signs of a vaccine-led recovery from the COVID-19 pandemic, the UK is focused on growth. Hosting both the G7 summit and the UN Climate Conference in 2021, the UK is reaffirming its position on the global stage and forging ahead with negotiating and signing trade deals with countries around the world.
Part of that is likely to encompass a strategy of focusing on building some leading industries, and then negotiating hard for those as part of the forthcoming trade deals. Already a services sector powerhouse, the UK can thus expand its global presence by helping industries with great potential for a competitive advantage.
"In the wake of Brexit, the UK will have to broaden its reach and we've already seen huge efforts to push ahead with trade deals," says Jonathan. "Of course, if you're going to trade, you need to have something to sell, something that overseas buyers want. That means on the domestic front, government needs to reinvest in those industries where the UK has an edge and make them attractive to private sector investment, too."
Supporting economic revitalisation
As part of its Build Back Better plan, the UK government has committed to investing in the rebound across three key pillars: infrastructure, skills and innovation. Capital spending plans of GBP100 billion have been announced, alongside GBP12 billion for projects supporting net zero. Reforms to help support investment from pension funds in high growth companies and a GBP375 million Future Fund aims to support innovation and scale up. And underpinning this, is the plan to level up delivering funding through the City and Growth and Transforming Cities initiatives, a new export strategy and investment in net zero to drive economic growth.
"It is important for investors to look for opportunity where there is strong growth, but also to consider the drivers of said growth," says Jonathan. "The UK resurgence is underpinned by some strong fundamentals, and the funding plans announced are targeting many of the areas where the UK already has an edge, but sometimes struggles to scale up."
The UK resurgence is underpinned by some strong fundamentals and the funding plans announced are targeting many of the areas where the UK already has an edge. - Jonathan Sparks, Chief Investment Officer, UK & CI, HSBC Private Banking
Key sector strengths
These areas include technology, skilled manufacturing, education, the creative industries, healthcare, life sciences and the decarbonisation and clean energy industry. "We already see that the UK's thriving higher education sector, for example, is a top destination for overseas students," says Jonathan. Indeed, Chinese students made up the greatest cohort, with some 120,385 studying at UK universities in 2018/19, followed by those from India (26,685) and the US (20,120)1.
"The healthcare and pharmaceutical industry has seen a massive boost with the UK development of the Oxford AstraZeneca vaccine, now the vaccine with the greatest reach2" he continues. "The UK also excels at skilled manufacturing and artificial intelligence, areas that slot well into the global thirst for automation."
A sustainability focus
The UK's ambitious goal of achieving net zero emissions by 2050 was further strengthened by its commitment in law to reduce emissions by 78 per cent of 1990 levels by 2035. To support that commitment, the UK government has created a Ten Point Plan for a Green Industrial Revolution, which encompasses finance and skills development for major and ongoing projects.
"Alongside that, the Bank of England has announced plans to review adjusting its Corporate Bond Purchase Scheme to support the transition to net zero," explains Jonathan. "This would effectively lower the cost of capital for those companies included."
Drivers of growth
Although the UK currently sits second to France for foreign direct investment in Europe, it remains an attractive destination. "It certainly won't be plain sailing for the UK given the increased friction with EU trade, but some companies should be able to capitalise as the government charts a new course. Its won't be an easy fix, but there is a genuine attempt to promote innovation and investment, backed by significant funding commitments, making the opportunities available increasingly attractive," says Jonathan.
Charles Boulton, CEO of HSBC Private Banking says, "HSBC's large UK footprint and the strength of our network means that we're supporting many of these dynamic companies to deliver on their growth plans, and it means that we're well-positioned to connect our clients with opportunity."