LIVE MARKETS-Goldman Sachs' view on British markets

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GOLDMAN SACHS' VIEW ON BRITISH MARKETS

It's Groundhog Day in Britain. In echoes of 2022, energy prices are elevated due to war, the ruling party is full of infighting, bond yields are on the up and the weather is still indifferent.

Goldman Sachs strategists have taken a look at what the current economic and geopolitical backdrop means for markets.

On bonds:

"Our rates strategists expect the repricing of Gilt yields to remain sticky given upside risks to inflation and the potential for fiscal deterioration from higher rates," GS says.

"And while markets over recent years have priced a substantial risk premium in Gilts vs other major bond markets, further deterioration in the fiscal position would put upward pressure on yields."

On the pound, GS FX strategists argue that:

Political uncertainty presents asymmetric downside risks to Sterling in the near-term but they highlight that this is more likely to materialise as bouts of weakness rather than a sustained trend, similar to the pattern in 2025.

In the medium-term they see more fundamental macro factors as the likely primary drivers of the currency, including structural Sterling overvaluation.

On stocks:

"Domestic banks, real estate stocks, FTSE 250—and especially homebuilders within mid-caps—are sensitive to political risks, as well as domestic energy costs. But these markets appear already priced that way."

"In contrast, the FTSE 100 is less sensitive to political risk and has a natural offset to energy prices via its heavy weight in oil companies."

"Our equity strategists have no strong preference within UK equities but see good value in real estate stocks for those looking to fade political risk."

(Samuel Indyk)

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