We recently compiled a list of the 10 Best UK Stocks to Invest in Now. In this article, we are going to take a look at where NatWest Group plc (NYSE:NWG) stands against the other best UK stocks.
The OBR (Office for Budget Responsibility) anticipates economic output in Britain to expand by 1.8% in 2026 and by 1.5% in 2027. In September 2024, KPMG reported that The Bank of England might take a more cautious approach when it comes to easing monetary policy as compared to the Fed and the ECB, with gradual cuts resulting in the UK base rate to 3.5% by 2025 end.
Furthermore, the labour market will continue to loosen, with fewer vacancies, and subdued pay growth but a relatively modest rise in the unemployment rate. KPMG went on to add that business investment might see some recovery next year if geopolitical uncertainties ease and the impact of reduced rates and the improving growth outlook offer businesses the confidence to commit to their investment plans.
What to expect from the UK Economy?
As per the new EY ITEM Club Autumn Forecast, the UK economy should grow 0.9% in 2024, down from the 1.1% growth expected in July’s Summer Forecast. The downgrade exhibits that household savings are now lower than expectations, providing less scope for consumers to increase their spending. Furthermore, lower-than-anticipated increases in consumer spending, together with cautious rate cuts to the Bank Rate, demonstrate that UK growth is expected to be steady rather than rapid over the upcoming 2 years.
EY added that business investment is expected to accelerate moderately in the coming years, with rate cuts providing a boost to the private sector. Therefore, the UK business investment should grow to 1.3% in 2024, an increase from the 1% expected earlier. Private sector investment is anticipated to accelerate to 3% in 2025, demonstrating a small downgrade from projections of 3.2% growth in its Summer Forecast.
Inflation Outlook for the UK Economy
EY expects that inflation is expected to average 2.6% in 2024 before falling marginally to 2.5% in 2025 and 2.1% in the following year. The firm believes that this ‘stickiness’ is because of several factors, such as tightness in the broader labour market, and the gradual slowing of pay growth. With spending growth anticipated to be lower than the earlier expectations because of reduced household saving rates, it projects consumer spending to rise by 0.8% in 2024.
EY expects that gradual cuts to the Bank Rate might provide some benefits to the UK’s housing market. It projects house price growth of 1.7% in 2024, and 2.1% in 2025, with declining borrowing costs anticipated to help offset other affordability challenges. Notably, the looser monetary policy is expected to have a modest impact on growth over the short term. Several borrowers on fixed rates will not experience the decline in their mortgage payments and a significant minority might refinance a fixed mortgage to a higher rate, despite a decline in Bank Rate.
Our Methodology
To list the 10 Best UK Stocks to Invest in Now, we used a screener to extract UK stocks. Next, we narrowed our list by selecting the ones having high hedge fund holdings. Finally, the stocks were ranked in an ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A financial planner carefully scrutinizing company’s investment portfolio.
NatWest Group plc (NYSE:NWG)
Number of Hedge Fund Holders: 11
NatWest Group plc (NYSE:NWG) offers banking and financial products and services to personal, commercial, corporate, and institutional customers in the UK and internationally. The company is headquartered in Edinburgh, the United Kingdom.
Wall Street analysts remain optimistic about NatWest Group plc (NYSE:NWG)’s acquisition of retail banking assets from Sainsbury’s Bank, including credit cards, personal loans, and savings accounts. This transaction is expected to be completed in H1 2025. The transaction provides a great opportunity to accelerate the growth of NatWest Group plc (NYSE:NWG)’s Retail Banking business at attractive returns. Given the complementary customer base, the transaction should add scale to its credit card and unsecured personal lending business within existing risk appetite.
This transaction is expected to have a 20-bps point impact on NatWest Group plc (NYSE:NWG)’s CET1 ratio upon completion and be EPS and RoTE accretive after completion. With customer activity increasing, defaults remaining low, and optimism surrounding the businesses and consumers, the company appears to be well-placed to continue its long-term growth trajectory.
While NatWest Group plc (NYSE:NWG) continues to expect to achieve a return on tangible equity of greater than 13% in 2026, it appears to be well-placed to deliver on its commitments to shareholders amidst the evolving economic landscape. Moving forward, disciplined growth throughout lending, deposits, and AUMA (Assets Under Management and Administration) should continue to aid its business fundamentals.
For FY 2026, NatWest Group plc (NYSE:NWG) is targeting a CET1 ratio of between 13% – 14% and expects RWAs to be ~£200 billion at 2025 end, including the impact of Basel 3.1 on a pro-forma basis. It expects the impact of Basel 3.1 to be an uplift of ~£8 billion on 1 January 2026.
Overall, NWG ranks 10th on our list of the 10 Best UK Stocks to Invest in Now. While we acknowledge the potential of NWG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than NWG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
