UK Services Sector Resilience Amid Global Tariff Uncertainty: Strategic Stock Positioning in Smith & Nephew and Fresnillo

The UK services sector, a cornerstone of the economy accounting for three-quarters of GDP, has faced a turbulent 17-month stretch of expansion ending in April 2025. A contraction in the S&P Global UK Services PMI to 49.0—a level not seen since January 2023—highlighted the sector's vulnerability to global tariff uncertainty, particularly U.S. trade policies. Yet, amid this volatility, certain FTSE 100 firms have demonstrated resilience, leveraging strong earnings, share buybacks, and sector-specific advantages to position themselves as compelling long-term investments. Smith & Nephew and Fresnillo stand out as exemplars of strategic adaptability, offering investors a balanced approach to navigating the current economic climate.

Smith & Nephew: Operational Excellence and Shareholder-Friendly Policies
Smith & Nephew (LON:SN), a global leader in medical technology, reported robust first-quarter 2025 results, with revenue rising to $1,407 million—a 1.6% increase year-on-year. Underlying revenue growth of 3.1% was driven by operational improvements and product innovation across its Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management divisions. The company's $500 million share buyback program, announced in Q2 2025, underscores its confidence in its financial health and long-term growth trajectory.

Despite foreign exchange headwinds (-150 basis points), Smith & Nephew's full-year 2025 guidance remains unchanged, with expected underlying revenue growth of 5.0% and trading profit margins expanding to 19.0%-20.0%. The company's exposure to the healthcare sector—a non-discretionary, inflation-resistant industry—provides a buffer against the direct impacts of trade wars. Analysts highlight its disciplined cost management and diversified geographic footprint as key strengths.

Investment Thesis: Smith & Nephew's combination of resilient demand for medical devices, a $500 million buyback, and strong balance sheet liquidity makes it a defensive play in a sector facing broader macroeconomic headwinds. Investors seeking stability and incremental growth in the UK services sector may find this stock particularly appealing.

Fresnillo: Capitalizing on Precious Metal Volatility
Fresnillo (LON:FRES), a Mexico-based gold and silver miner, delivered a staggering 297% year-on-year profit increase in the first half of 2025, driven by surging precious metal prices and operational efficiency. Free cash flow reached $1.02 billion, enabling a 20.8 US cents per share interim dividend—a tripling of its 2024 payout. The company's share buyback program of £40 million, coupled with a revised gold production guidance of 550-590 kiloounces, signals confidence in its ability to sustain profitability despite the planned closure of the San Julián DOB mine.

Fresnillo's performance is closely tied to global economic uncertainty, which has driven demand for gold as a safe-haven asset. While its current P/E ratio of over 50 may appear elevated, the company's robust free cash flow generation and strategic focus on cost discipline justify the valuation. Analysts project 2025 revenue of $3.87 billion, reflecting a 10.6% year-on-year growth.

Investment Thesis: Fresnillo offers a high-conviction opportunity for investors willing to ride the tailwinds of geopolitical and macroeconomic volatility. Its exposure to gold—a traditional hedge against inflation and currency devaluation—positions it as a strategic asset in a diversified portfolio. However, its performance remains contingent on gold price dynamics, which could introduce short-term volatility.

Sector Optimism and the Path Forward

The UK services sector's outlook, while cautious, is not without hope. The Bank of England's rate cuts (now at 4.25%) and the potential for a trade deal between the UK and U.S. have spurred a modest rebound in business confidence. Smith & Nephew's healthcare-focused resilience and Fresnillo's commodity-driven growth exemplify how sector-specific strengths can mitigate broader economic risks.

For investors, the key lies in balancing defensive plays like Smith & Nephew with higher-conviction, cyclical bets like Fresnillo. Both companies have demonstrated the ability to navigate uncertainty through operational discipline, capital allocation, and strategic reinvestment. As the UK services sector inches toward stabilization, these stocks offer a dual approach: stability in the short term and growth potential in the long term.

Final Recommendation: Position a portion of your portfolio in Smith & Nephew for its defensive qualities and consistent cash flow, while allocating to Fresnillo for its exposure to inflationary tailwinds and commodity price resilience. Diversification across these high-performing FTSE 100 firms can provide a hedge against global tariff uncertainty while capitalizing on sector-specific opportunities.