Barclays Turns Optimistic on U.K. Equities, Warns of Gloomier French Outlook
Barclays said signs of renewed optimism are emerging in U.K. equities as domestic data improves and the Bank of England moves closer to a potential rate cut.
The FTSE 100 index has gained around 19% so far this year, outperforming both the Euro Stoxx 50 and the S&P 500 in local currency terms. In contrast, the more domestically focused FTSE 250 is up only 8%, showing continued investor caution toward the U.K. economy.
Improving U.K. Data and Lower Yields
Barclays noted that recent data — including stronger PMI and retail sales alongside lower inflation — has pushed gilt yields down by roughly 32 basis points over the past two weeks.
“Tactically, we believe the recent underperformance of U.K. domestics improves their risk-reward heading into a catalysts-heavy November,” wrote strategists led by Emmanuel Cau. They added that Barclays expects the Monetary Policy Committee (MPC) to deliver a surprise 25-basis-point rate cut next week — a move that markets currently price at only 23% probability.
The upcoming November 26 budget will also be a key moment for investor sentiment. Barclays economists estimate the Chancellor may need to consolidate around £40 billion by fiscal 2029–30 to stay within fiscal rules, up from earlier projections of £26.5 billion.
“This presents a risk of lower growth and weaker inflation into 2026, so the outlook remains challenging,” strategists said. However, they expect the government to “prioritise fiscal credibility, even if that requires limited, non-inflationary tax hikes that go beyond Labour’s manifesto pledges.”
Despite structural post-Brexit challenges, Barclays believes domestic and bond-proxy stocks could offer short-term opportunities if the budget surprises positively.
France Faces Rising Business Pressure
In contrast, Barclays described a much gloomier tone in France, where the 2026 budget debate has “become a battleground for anti-business sentiment.” Lawmakers from both the far right and far left are pushing for higher corporate taxes.
The government has extended a corporate tax surcharge, raising effective rates for large firms to 33.825%, and has doubled the levy on tech companies to 6%. Lawmakers also approved a new tax on share buybacks, increasing the rate from 8% to 33% for companies with revenues above €750 million, along with a progressive ‘superdividends’ tax.
Barclays strategists warned that even if these measures are softened in the Senate, the combination of volatility and populist rhetoric will likely keep pressure on French assets, with risk premiums on domestic stocks remaining elevated ahead of the 2027 presidential election.
