UK shares I’d buy as the economy recovers 

With the UK economy in a pretty sweet spot and rising stock markets, what is Manika Premsingh buying?

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News on the UK economy continues to look good. The headline numbers look better, unemployment is falling, and consumers are feeling more confident about making purchases. 

And that is not all.

Inflation is not a risk for now

Inflation has been an increasing concern in recent months. Even in the UK, inflation rose to 2.1% in May compared to the same month last year. The Bank of England (BoE) likes to keep it at 2%. So this number was marginally higher. 

However, the BoE does not think it is a cause of concern for now. Yesterday, it kept its key interest rate unchanged at a low 0.1%. It believes that the price rise is transitory, which will smooth itself out over time. 

If the situation indeed stays as is, then the UK economy will be in a pretty sweet spot. It will see fast growth, low inflation, and rock-bottom interest rates. 

Attractive UK shares

This should positively impact companies across sectors. But I think it will be particularly good for cyclical stocks. These are stocks that show above average increases during good times and vice versa. Among UK shares, the key cyclical ones are in mining, oil, property, construction, and non-essential retail. There is a double advantage in buying into these sectors. Not only are their prices rising, their dividends are healthy too. 

While it is tempting to buy these stocks, the big challenge here is that their share prices have run up a lot already. Athleisure retailer JD Sports Fashion, for instance, is well beyond its pre-crash share price levels. It actually touched new all-time highs recently and ever since it has stayed around those levels. 

So here is what I am doing next. I am definitely holding on to the ones already in my portfolio. But I will also look out for dips in their prices, because these can be good opportunities to buy. 

Healthcare and utility stocks are my bet

What I would most focus on now, however, are UK shares that are out of luck. Like defensives, which are also safe stocks. They have high tolerance for slowdowns in the economy, so they tend to do well in uncertain times. 

Like the healthcare biggie AstraZeneca that I wrote about yesterday. Its share price lost its mojo as that of cyclical stocks picked up. But it seems to be back in the game now, having made up for some of the share price losses of the past few months.   

I reckon similar increases will be visible for other defensives that are now being ignored for more attractive cyclical stocks. I will closely look at other healthcare stocks and also other safe stocks like utilities. FTSE 100 utilities in fact have an advantage over healthcare stocks in that they also have relatively high dividend yields.  

As a long-term investor, these can be good to hold because they generate steady passive incomes and minimise my losses when the economy is in a funk. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of AstraZeneca and JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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