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The best stocks to buy in the UK, according to Barclays

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The best stocks to buy in the UK, according to Barclays

While sentiment towards the UK market has improved over the past year, Barclays (BARC.L) strategists say the stocks still look under-owned and cheap, highlighting a number of companies that are likely to benefit from a positive economic backdrop in the UK.

Labour’s landslide victory in July’s general election, as well as an improving economic picture, have buoyed UK markets this year.

The FTSE 100 (^FTSE), in which the UK’s biggest companies are listed, is up 7.9% year-to-date. The broader FTSE All-Share (^FTAS) index, which encompasses the FTSE 100, FTSE 250 (^FTMC) and FTSE SmallCap (^FTSC) indices, is up 7.8%.

However, Barclays European equity strategy team said in a note published Wednesday, that “some of the goodwill the country was enjoying after the election has dissipated on gloomy government messaging around the fiscal/growth situation”.

Read more: How the UK’s capital gains tax compares with other countries

Prime minister Keir Starmer has warned that the upcoming autumn budget is going to be “painful” and said he would have to make “big asks”, as the government seeks to fill a gap in public finances.

There has been much speculation as to what chancellor Rachel Reeves will target to raises funds in her first budget on 30 October, with fears around the impact of rumoured policy changes, such as raising capital gains tax.

Barclays’ strategists said these concerns had “hit sentiment towards UK domestic stocks”.

“However, our economists do not expect much of a drag, as revenue increases are to fund investment and spending,” they said. “Negativity going into the budget may therefore be too high, in our view.”

Meanwhile, the macro situation has been slowly improving, with data released last week showing the UK economy grew by 0.2% in August, returning to growth after it flatlined for two months in a row.

Figures released Wednesday showed that UK inflation slowed to 1.7% in September, the lowest rate since April 2021, and falling below the Bank of England’s 2% target. This cemented bets that the BoE would announce another 25 basis-point interest rate cut in its early November meeting.

Barclays’ strategists also said “UK investments could benefit from mending EU ties over the longer term”.

Even so, they said: “UK stock valuations still look depressed, and having been off investors’ radars for a while, they still looks very underowned to us.”

“But the investment story is not simple,” they added, highlighting the specific stocks which their analysts have given an overweight rating.

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