Buy British, consumer spending will hold up, Barclays says

Domestically-focused UK stocks are unloved and underpriced, but unjustifiably so, analysts at Barclays Research believe, as they predict that recent outperformance by the group will run further.

In their opinion, valuations were factoring in a drop in UK consumer spend typical of a recession environment.

Indeed, they key to the economic outlook was still in the hands of the British consumer, they said.

However, inflation was set to peak in the third quarter of 2016 and survey data was pointing to wage acceleration, so consumer confidence should be well-supported from hereon, they said.

"Household savings rates, once adjusted for non-cash items, do not look alarming. Both consumer lending and household leverage statistics remain below the levels seen during the previous cycle," they explained.

So despite "significant" (and surprising) upgrades to estimates for companies' earnings per share after Brexit, the second tier FTSE 250 was "cheaply priced" relative to the Footsie.

UK General retail was discounting a 20-point drop in consumer confidence and UK banks, homebuilders and travel&leisure names also appeared to be cheaply priced, they said.

The same was true of real estate stocks, which "appear to be pricing in a 20% decline in book value, at a time when the IPD capital values index has started to tick higher."

Following on from the 'Buy British' theme of the research report, Barclays added WH Smith, M&S and Lloyds to its European recommended portfolio, while removing Almirall, PPB and SocGen.