Word on the street is the UK economy’s not that bad

If we want to know what’s really going on in the UK economy, we don’t listen to politicians, economists, think tanks or statisticians. We ask companies. 

We spend most of our time meeting small businesses who are navigating the day-to-day reality of trading in the domestic economy. The overriding message from these conversations is that trading is actually okay. It's not a boom, but business is certainly better than the dire picture painted by the media. There have been a few more negative updates recently but for the vast majority of companies, trading is currently in line with or slightly better than expectations. 

To put this into context, Dunelm has been saying it is “yet to see a sustained recovery” for two and a half years. Even so, it delivered 3.8%¹ sales growth in 2025, driven by volume rather than pricing, and has expanded market share consistently for a decade.

The most important thing we're hearing from companies concerns the labour market. The increase in employer national insurance contributions has led to a slowdown in employment but it hasn't led to a spike in unemployment. Our conversations with companies would suggest that a spike is not likely in the future; they are not planning huge redundancy programmes. We are hearing, however, that wage inflation expectations are moderating.

Share buybacks and takeovers

Beyond what companies are saying, what they are doing is also indicative of how confident management teams are. Here, the two salient trends are share buybacks and takeovers.

Since the start of 2019, our Artemis UK Smaller Companies Fund (which we manage alongside Artemis UK Future Leaders plc) has received 38 takeovers at an average premium of 48%². Most recently Alpha Group, the cross border foreign exchange specialist, was acquired by the American corporate payments company Corpay in July at a 55%³ premium. These premiums prove just how undervalued UK-listed small businesses have become.

Going forward, as interest rates continue to gradually fall, we expect to see more takeovers unless valuations creep meaningfully higher.

The other thing smaller companies are doing is buying back their shares in record amounts. M&A has always been something of a small-cap phenomenon but buybacks, traditionally, have not. That companies can afford to buy back so many of their own shares shows how strong their balance sheets are. Buybacks also underscore how confident boards are in the outlook for their businesses, as well as their belief that their shares are undervalued. What’s more, buying back shares at an attractive price can generate strong returns for ongoing shareholders. 

The economy is more resilient than sentiment implies

Ultimately, fundamentals are what will dictate confidence and spending, and we think fundamentals are better than the prevailing narrative in the press implies. If we just focus on one number, the UK consumer savings rate is currently about 11%⁴ – almost three times the rate in the US⁵. 

We estimate that every 1% change in the UK’s household savings ratio is equivalent to about £15bn of additional spending. At some point, sentiment will change and that spending will be unlocked, which we believe will be significantly more powerful than any tax rises in the budget. 

The bottom line is this: the UK consumer is in a good position. People have money in their pockets; they just don’t have enough confidence to spend it.

The best time to invest in a stock is arguably when people are worried and the share price is low, before the recovery. You make money when things change and the share price bounces. So if you think of the UK market as like a stock, now would appear to be an optimal time to invest.