As somebody who invests primarily in UK shares, I used to be dissatisfied by final month’s Funds. Most economists seem to agree that the chancellor’s bulletins are more likely to depart rates of interest larger for longer.

Though the Financial institution of England (BoE) lowered the bottom fee by 0.25% (7 November), the federal government’s determination to borrow one other £32bn over the subsequent 5 years means the tempo of future cuts is more likely to sluggish.

Certainly, UK 10-year gilt yields are at present (8 November) 0.4% larger than they had been two weeks earlier than the Funds. This benchmark’s used to price mortgages and different loans so it’s a very good indicator of future borrowing prices.

This makes me wonder if I would like to vary my strategy. In a better rate of interest surroundings, now may very well be a very good time for me to deal with UK shares with decrease ranges of borrowings.

To make clear, my definition of debt excludes lease labilities. That’s as a result of there’s often a corresponding asset on an organization’s steadiness sheet for the sort of debt.

Presently, there are three FTSE 100 shares with no borrowings.

Sturdy steadiness sheets

Wholesome money flows have traditionally helped Persimmon (LSE:PSN) keep away from the necessity to borrow. And with no curiosity to pay, this implies there’s additional cash left over for shareholders. Lately, the housebuilder’s paid out almost all its earnings in dividends.

And when the BoE began to chop rates of interest, many thought this might assist increase demand for its properties. Certainly, it expects to construct 5.8% extra properties in 2024 than in 2023. And its order ebook’s 17% larger than a 12 months in the past.

Nonetheless, I wouldn’t wish to make investments in the intervening time. And that’s unlucky on condition that I already personal shares within the firm!

The uncertainty over the long run path of rates of interest makes me suppose that the restoration within the housing market may sluggish. And I feel the federal government’s determination to cut back the stamp obligation threshold for first-time patrons isn’t going to assist.

Additionally, I used to be involved when the corporate stated in its buying and selling replace on Wednesday (6 November): “We are seeing some signs of build cost inflation beginning to emerge in price negotiations for 2025”.

Unsurprisingly, this despatched the corporate’s shares sharply decrease.

One other debt-free firm is Rightmove. However because the proprietor and operator of the UK’s largest property web site, it’s additionally more likely to be adversely affected by larger rates of interest.

Auto Dealer Group‘s the third member of the Footsie with no excellent loans or overdrafts. Nonetheless, Funds tax will increase will affect on the profitability of automotive sellers, which may cut back their advertising and marketing spend. Additionally, larger borrowing prices will cut back disposable incomes and depart much less headroom for drivers to vary their autos.

What ought to I do?

However I haven’t misplaced confidence in UK shares as I’ve lengthy believed them to be attractively priced in comparison with, say, these on the opposite facet of the Atlantic.

Whereas I had thought different traders can be attracted by a number of the FTSE ‘bargains’ at present on supply, I don’t suppose the Funds’s helped enhance sentiment.

But I nonetheless see potential. I’m going to contemplate different inventory markets, however I’m additionally going to deal with UK shares with much less publicity to the home financial system once I’m subsequent able to take a position.