An ongoing cost-of-living crisis, waves of strike action, sky-rocketing energy prices, and the looming prospect of a recession are just some of the issues at home. Then there’s the war in Ukraine, as well as the lingering after-effects of Covid-19. That’s a pretty extensive job list by anyone’s standards.

Only time will tell how well she handles these issues – and the hostile political environment – but it’s fair to say she’s made an encouraging start.

Energy prices

Almost immediately, she unveiled to the House of Commons an energy price guarantee to give worried people more certainty over their bills. It means that, from the beginning of October, a typical household will pay £2,500 per year for each of the next two years. This should save them around £1,000-a-year.

Businesses, who have been warning how soaring energy costs are threatening to put them out of business, will get a similar guarantee for six months. Although she’s pledged further support after that time for vulnerable sectors, such as hospitality, it’s unclear at the moment whether such actions will head off potential problems.

Cost-of-living crisis

So where should she turn her attention next? Well, closely linked to the rising energy prices is the broader cost-of-living crisis that we’ve been facing for months. According to official figures, inflation ran at 9.9% in the year to August 2022. To put that into context, the rate was 0.8% in April 2020, which was pretty much the start of the first Covid-19 lockdown.

Unsurprisingly, this is causing great distress to many people, which was a point acknowledged by Sue Noffke, manager of Schroder Income Growth Trust, and her colleagues Andy Brough and Jean Roche.

“With inflation set to remain high throughout 2023, industrial action is set to increase,” they warned.

“In 2022 we have seen strikes by transport workers, postal workers and barristers, and this unrest is set to expand to other industries.”

Is now the time to buy UK equities?

Fund managers are finding attractive companies in which to invest. This includes domestically focused names as well as UK-listed businesses with global operations.

The pessimist in me says it is still too early. The Bank of England has openly said it thinks the UK is going into a long and protracted recession. UK real wages are falling at a record rate, and consumer confidence is at the lowest in history – not good news for businesses.

The optimist tells me a lot of this is already priced in and history shows us that small and mid-caps, historically lead recoveries in markets – we also must remember that when you read about the history of recessions, the market can spend 12-15 months falling and then unwind all that negative performance in two or three months. An allocation to these areas might mean some more pain now but a lot less in the future.

Among the funds worth considering is Rathbone UK Opportunities. It’s run by Alexandra Jackson, who invests in a small number of fast-growing UK stocks whose value is unrecognised.

Then there’s IFSL Marlborough Multi-Cap Growth, which has been managed by Richard Hallett for the past 17 years. His unconstrained approach enables him to pick small, medium, and large cap companies for the portfolio.

Finally, there’s the experienced Richard Buxton’s Jupiter UK Alpha fund. This is a high conviction portfolio of mostly large UK companies with healthy balance sheets and strong business models.

Darius McDermott is managing director of Chelsea Financial Services and FundCalibre