This week's Macro Trends highlights the UK’s  macro and market performance so far this year and the figures are not pointing in the right direction.
The country registered strong GDP growth and the FTSE 100 saw its best YTD performance of the century.

On the flip side, we’re seeing a cooling employment market reflected in declining staff availability and placements as well as increased inflation and steepened Gilt yields.
The BoE recent rate cut signals a cautious approach to future reductions ,although the latest inflation print may help hold the rates steady.
Is the FTSE 100 consistently lower P/E ratio suggesting a potential value play for UK investors?

Growth

The latest data confirm the UK is running right in the middle of G10 GDP growth, trailing only the Netherlands in Europe.

While Q2 growth was still lower than Q1, the UK is still in a strong position compared to its peers.

What stands out, however, is how the expansion is being delivered – see next section.

Household consumption remains the undisputed engine—adding roughly 0.5 ppt to the YoY growth.
In terms of QoQ growth, Government consumption and business investments are the biggest contributors, adding around 0.5 ppt in total. Inventory change is struggling in the quarter, while external sector is still a mild drag.

Labour Market

KPMG’s index of Available staff has been growing since mid 2021 while Demand and Placement, on the other hand, has been going down in the same period and below50 since Oct 2023, indicating continuous contraction.

Weak employer confidence in the economic outlook, coupled with tighter recruitment budgets, is frequently cited as the reason for the recent decline in permanent and temporary staffing.

The recent soft employment data could have been an important impact to BoE’s decision to cut rates this month.

Similar to the KPMG indicator, last week’s release by the ONS show a cooling of the employment market.

While the numbers themselves are not dramatic and perhaps reflecting a cautious approach to hiring driven by various macro factors, the continuous decline since 2022 remains worrying with the 25-34 cohort having seen the largest decline this year.

Breaking down the employment statistics into sectors, consumer-facing services are contracting the most with Accommodation and Food Services (-4.9 %) and Wholesale & Retail (-1.4 %)both showing large falls.

Cyclical sectors are following suit: Manufacturing (-1.0 %) and Construction (-1.6 %) are now shedding jobs after modest gains earlier in the year.

Public-sector heavy industries—Health & Social Work (+1.5 %), Education (+0.8 %) and Public Administration (+0.5 %)—, however, continue to add workers, cushioning the aggregate number.

Rates & Yields

The BOE just lowered its interest rate by 0.25 ppt to 4% on 7^thAugust, the fifth cut in twelve months and the lowest level since early 2023 –
Future reductions will probably be slow, as the SONIA Future has priced in that there might not be a rate cut until mid 2026.
When we look at the implied rate cut trajectory,  the latest future expectation has lifted compared to previous bet in July, indicating market expect a more gradual rate cut in the near term.

On the Yield front, the term structure of the Gilts has steepened from deeply inverted back to its normal state; signaling fading recession fears but renewed worries about fiscal crowding-out and inflation persistence.
To further the analysis, we ran a PCA to dissect the structure changes in numeric terms (please note that we are making assumptions as to each component).

Over the past 12-18 months, we can see most of the change coming from a steepened slope, while level and convexity changes are minimal.

Market Performance

This chart looks at G10 equity performance YTD and recovery since the US made their tariff announcements, with a special focus on the FTSE 100.

Most of the indices suffered over10% drawdown after Liberation Day, but we can see all have recovered since, with a handful recording even higher returns.

The UK in specific, having recently agreed a favourable 10%tariff deal with the US, has seen its flagship FTSE 100 record its best YTD performance of the century – 13.6%.
*Please note that we picked the FTSE 100 instead of MSCI UK which was on the previous chart but the analysis is extremely similar.

On the profitability front, we’re looking at EPS growth across the same indices, both on a historical (Last 12moths) and a forward-looking basis (Next 12 months).

Despite its strong performance, the MSCI UK EPS growth hovers around 0 – staying lower than its historical median, both LTM and NTM; similar to the rest of G10.
On a forward-looking basis (right), it’s also lagging compared to most of other G10 countries.

Based on the previous chart, however, we can see that this underperformance of the underlying fundamentals does not seem to overly worry investors.

PLEASE NOTE THAT THESE CHARTS USE FACTSET DATA VIA MACROBOND, PLEASE REACH OUT TO YOUR ACCOUNT TEAM CASE YOU CANNOT ACCESS THEM.

Zooming in on Europe, when it comes to valuation, however, the FTSE 100 has seen its P/E consistently (almost) lower compared with its European peers since 2018 – a sign of the market being under-valued.

So far this year, the gap has widened, potentially presenting a value play for UK investors closing.

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