What do we expect from the new Prime Minister?


Author: Angela Hendry

After a long period of political uncertainty, we hope that the appointment of the new Prime Minister, Rishi Sunak, will bring much needed stability to the country as well as our local and European markets. From his time as Chancellor of the Exchequer, we have had some insights already into what his premiership could entail, however we continue to wait with bated breath on what the proposals will be and more importantly what impact they will have.

Our Head of Operations, Angela Hendry, sat down with our Real Estate Director, Doug Burton-Cantley, Darragh Comer our Finance Director and Nick Cliffe, Investment Manager, to get feedback on what expectations they have from our new Prime Minister

“Hi Doug, Darragh, Nick, thanks for sitting down with me. Following the appointment of our new Prime Minister, what are your expectations”

Nick: “The uncertainty of the last few months has had a material impact on investor sentiment and confidence in the market. The appointment of the new prime minister has brought some positive indications, however a clear and sustained message on how policymakers will address the economic headwinds ahead will assist in calming the money markets and improve sentiment, which in turn will lead to a more stable investment environment where sellers and buyers will not be affected by such opposing pricing expectations.

Darragh: We saw from the short-lived Truss premiership that now is not the time to experiment with notions such as trickledown economics. The inflationary pressures caused by the Ukraine conflict are largely outside of the UK Government’s control, but at the very least Sunak should aim to not exacerbate the problem through misguided policies and unclear messaging.

Doug: “The debt markets have certainly been in turmoil with central banks needing to be seen to deliver strong fiscal policy to control inflation. Various base interest rate increases have already been actioned and the markets continue to price in further rises through 2023, thereby inflating the cost of borrowing across the real estate market. Lending banks remain keen to lend but we are seeing a drop in leverage levels as risks are reviewed, and now Interest Cover Ratios are under pressure from the increased cost of funds. Our view is that we will see a stabilization of the debt markets through the remainder if this year and into Q1 2023 and would expect to see a base rate environment around 2.25%-2.75 by the end of 2023. Looking back historically this would still be a ‘low interest rate’ environment and so the markets should adjust accordingly, taking us way from the current instability.”

Darragh: The market yearns for certainty above all else, so our hope is that the upcoming budget announcement will lay out a clear, sensible, fully-costed direction that can enable businesses to plan without worrying that another U-turn is around the corner.

Nick: “ESG and sustainability play a vital role at Avignon Capital in both our business and our investments. We are fully aware that the transition to net zero agendas presents one of the largest challenges facing businesses in the coming decades, therefore we look forward to the prime minister putting the relevant policies and incentive structures into place to facilitate this and accelerate the sustainable investment that the UK requires.

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