Bank of America (BofA) has told clients that the recent summer downturn in UK equity markets represents a strategic buying opportunity, as robust macroeconomic indicators point to a resilient economy. The FTSE 100 closed at 8,214 points on Wednesday, down approximately 3% from its May peak of 8,474, driven by global growth worries and profit-taking. BofA strategists argue that the sell-off is overdone, given the strength of UK economic data.
The advisory comes after official figures showed the UK economy expanded by 0.7% in the first quarter of 2025, beating consensus estimates. The labour market also remains tight, with the unemployment rate holding at 4.2% and average earnings growing at 5.1% annually. BofA notes that this backdrop should support corporate earnings and investor sentiment in the second half of the year.
Sector-wise, the recent decline has been broad-based, but financials and energy stocks have been among the hardest hit. Barclays shares have fallen 6% since early June, while BP has dropped 4% on lower oil prices. BofA suggests that defensive sectors such as utilities and healthcare may offer relative safety, but cyclical stocks could deliver stronger returns as the economy gathers pace.
For UK investors and pension holders, the dip presents a potential entry point for long-term portfolios. Many pension funds are heavily weighted in UK equities, and a sustained recovery would bolster retirement savings. However, analysts caution that volatility could persist in the near term, particularly if inflation data or central bank policy surprises markets.
BofA's call aligns with a broader view among some City economists that the UK is on a steadier footing than many peers. With the Bank of England expected to hold interest rates at 5.25% through the summer, the focus remains on whether corporate earnings can justify current valuations. Source: Bank of America Global Research