Low interest rates put UK equities in a sweet spot

Let us enjoy the equity sweet spot for now. Interest rates are likely to remain low for some time as the recovery remains fragile.

Earnings upgrades abound as overly bearish analysts’ expectations are replaced with improving profit margins driven by cost-cutting, re-stocking and low capacity utilisation. M&A activity is on the agenda once more as management move from self-preservation to growth. The strong will get stronger. Despite the rally, the valuation of UK equities remains undemanding relative to other asset classes. However, the market is clearly not without risks and the greatest of these is policy error. It is the very recovery in growth that now creates the dilemma. How can our heavily indebted Government...