UK rate cut confirms rapidly deteriorating economic outlook

Today's widely anticipated 25 basis point cut in Bank of England base rates further confirms the rapidly deteriorating macro-economic outlook for the UK, says Ted Scott, manager of the F&C UK Growth & Income Fund.

"This week's IMF Global Financial Stability Report and data released by the Halifax, revealing the biggest monthly fall in UK house prices since 1992, has clearly helped inject a sense of urgency into the Monetary Policy Committee's thinking. The MPC, which has been carefully balancing concerns about inflation against a slowdown in growth, is clearly very worried about the economic outlook and it is also possible they know something that the rest of us do not know," said Scott.

"Certainly the Chancellor's recent forecasts appear to have been way too optimistic," he added.

Scott points to a raft of grim recent data with house prices down a staggering 2.5% in March, a drying up of first-time home buyers, rising oil and food prices and an all time low in the Sterling / Euro exchange rate ahead of the summer holiday season.

"Disposable income is really being squeezed and in my view a recession is becoming increasingly likely. This is being mirrored in the exchange rate," added Scott.

"Today's profit warning from Dixon's is yet further evidence of toughening conditions on Britain's high streets. For some time we have positioned the F&C UK Growth & Income Fund very underweight domestic consumer-facing stocks and we will continue to do so. We also remain underweight domestic banks, though some exposure is necessary to harness yield."

"Thankfully," Scott concluded, "the UK market contains a large number of stocks with significant overseas earnings, particularly in the FTSE 100 and the commodities sector, so we are able to find opportunities that are relatively less exposed to the deteriorating UK economy while staying within the remit of the Fund."