Peel Hunt: There’s a ‘missing piece’ in Reeves’ City growth push

The government has demonstrated a “fundamental shift” in its approach to growth but must address the key issue of pushing investment into the UK stock market, Peel Hunt has said.

In an a note to investors today, Peel Hunt’s head of research, Charles Hall, stressed that while Rachel Reeves‘s Mansion House speech had been a “seminal moment” for the UK last week, the “piece that was missing” was direct action to increase investment in UK equities.

This could be done by incentivising pension funds to invest more in the UK, including London’s junior AIM in business property relief and adjusting ISAs, Hall said, adding that offering “tax advantages to invest in cash and overseas assets make little economic sense”.

He noted that if domestic allocation to UK stocks increased by between five and 10 per cent, that would result in a further £40bn to £80bn of investment in the UK by 2030.

Hall explained that the UK has been locked in a low-growth environment since the global financial crisis “with a paltry 1.1 per cent annual GDP growth compared to two per cent in the US”.

However, the research chief said that with the “right environment and government initiatives”, the UK can return to being a higher growth and productive economy, which is why the recent initiatives from the government were so important.

In her maiden Mansion House speech in the City last week, Reeves said that regulatory measures brought in since the global financial crisis have had unintended consequences in hampering growth.

In an effort to boost risk taking and growth in the City, Reeves laid out a package of reforms aimed at driving competition across financial services and unlocking a wave of capital from the UK’s pension system.

Along with the reforms, she pledged to focus on the financial services sector as one of the eight ‘growth-driving sectors’ for the UK, with the government making a call for evidence with a strategy plan to be published next spring.

One of the new reforms from Reeves were letters to the Financial Conduct Authority and other City regulators to ensure a greater focus on growth.

“We have seen suggestions that this is inconsequential – we totally disagree,” said Hall. “Messages from the government demonstrate its priorities and clear direction.”

Hall noted that the City has already seen “material change” at the FCA since its secondary growth objective was introduced last year.

Meanwhile, Reeves pledged to consolidate over 80 local authority pension pots with assets worth £350bn, launch a new private stock exchange, and bring new backing to a ‘British Growth Partnership’ vehicle, all of which was welcomed by Hall.