News in Review

“Falling COVID cases and the slow return to offices offer further hope for town and city centres”

Storms Dudley, Eunice and Franklin swept the country over the last week or so, causing major disruption. With trains and flights cancelled, schools and venues closed, people were urged to avoid travel and to stay at home. The economic impact will no doubt be felt as people hunkered down to stay safe.

Some positive UK retail data released on Friday from the Office for National Statistics (ONS) detailed a sales rebound of 1.9% in January as shoppers returned to the High Street following the disruption caused by Omicron the previous month, when retail sales volumes fell by 4.0%. This increase was the largest monthly rise since shops reopened last spring.

Looking at the data, ONS Director of Economic Statistics Darren Morgan commented from a sector perspective, “It was a good month for garden centres, department and household goods stores, with particularly strong trading for furniture and lighting. Food sales fell below their pre-pandemic level for the first time, though, as more people returned to eating out and there was also anecdotal evidence suggesting higher demand for takeaways and meal-subscription kits.”

The rise in High Street footfall meant that the proportion of online sales (25.3%) dropped to its lowest level since March 2020 (22.7%). Although a continuation of a downward trend, the percentage of retail sales made online was still higher than prior to the pandemic (19.8% in February 2020).

Chief Executive of the British Retail Consortium, Helen Dickinson, commented on the recent dataset, “Despite falling consumer confidence, retail sales held up well in January as retailers went to great lengths to keep up the Christmas momentum… Falling COVID cases and the slow return to offices offer further hope for town and city centres that were hardest hit by the pandemic. Yet, rising inflation means households may be preparing for future falls in disposable income, including from April’s National Insurance and energy price cap rises. Retailers face similar challenges, with increases in transport and energy costs, global commodity prices and domestic wages. While retailers are going to great lengths to mitigate or absorb these cost increases, it is inevitable that prices will rise further in the future.”

Over three quarters feeling the pinch

As cost of living issues intensify, new rapid response survey data on economic activity and social change from ONS showed that in the ten-day period to 13 February, 76% of adults reported their cost of living had increased over the last month, up from 69% in the previous period (19 to 30 January 2022). The most frequently reported reasons continued to be rising food prices (90%), rising energy bills (77%) and increases to the price of fuel (69%). In addition, rent rises are adding to the burden for millions; average rental costs for UK tenants increased by 2% last year, the largest annual increase since 2017. The East Midlands saw the biggest increase in average rental prices, with tenants paying 3.6% more than a year earlier, while London had the smallest increase, at 0.1%.

Markets

The markets were as changeable as the weather last week, European stock markets closed in the red on Friday as storm Eunice battered parts of the UK and Europe, driving down power prices and lifting wind turbine output to some of the highest levels ever seen. As tensions mounted over the worsening situation in Ukraine and the threat of military action by Russia, gold prices jumped to an eight-month high and oil prices climbed on fears that the crisis will disrupt global supplies. Brent crude oil reached a seven-year high of $99.38 a barrel on Tuesday, before moderating to end the day at just under $97 a barrel.

All change

On Monday night at a Downing Street briefing, Boris Johnson announced his ‘Living with COVID-19’ plan, which stated that all legal restrictions would end later this week and free testing for the general public will stop from 1 April. In Scotland, Nicola Sturgeon announced on Tuesday that the COVID passport scheme will end on 28 February, with the legal requirement to wear face masks being lifted on 21 March.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Commercial Property Market Review – February 2022

Upbeat mood for regional office activity

The regional office investment market remains upbeat, according to the latest quarterly update from Avison Young, after office demand across the ‘Big Nine’ returned to ‘normal’ activity in H2 2021.

A strong second half brought the year’s total take-up across the Big Nine cities to 8.1 million sq. ft, only 5% below the ten-year average. Volumes for the Big Nine office markets, meanwhile, recovered to £2.6bn, 8% above the ten-year average. Although the total number of deals slowed in Q4 2021, NatWest acquired One Hardman Boulevard in Manchester for £292m, the largest deal of the year.

Prime yields for most cities were unchanged in the final quarter, with an average of 5.36%. The MSCI quarterly index did, however, show the yield gap between prime and secondary property widening, highlighting a shift towards the best quality assets.

Mark Williams, Principal and Managing Director of Regional Investment at Avison Young commented, “Well-located, good quality assets with a strong tenant base continue to receive good levels of interest, particularly those that meet net zero carbon investment criteria and fulfil expectations for positive rental growth.”

Rosy picture for investment expectations

UK real estate professionals reported positive investment trend movements during Q4, in line with a global uplift in sentiment observed in the latest Royal Institution of Chartered Surveyors (RICS) Global Commercial Property Monitor (GCPM).

The GCPM showed UK capital value expectations for the next year rising across all sectors. Top of the list is the industrial sector; a net balance of +84% of respondents expect prime industrial values to increase.

Prime office value expectations also rose, with a net balance of +24% anticipating an increase. With work-from-home restrictions now lifted, two-thirds of respondents believe an office is still essential to successful operations. At the same time, 76% of contributors noted rising demand for flexible and local workspaces.

Tarrant Parsons, RICS Economist, commented, “Strength across the UK industrial/logistics market shows no sign of abating, with capital value expectations for the year ahead posting a fresh all-time high across the sector during Q4… sentiment appears to have largely weathered the uncertainty brought on by the rapid spread of the Omicron variant in recent weeks.”

Industrials and retail warehousing are star Scottish performers

Industrial property and retail warehousing have surpassed offices in annual volumes for the first time since 2011, with combined investments of £541m, figures released by Knight Frank have revealed.

The pair contributed nearly a third of the year’s total investments, a 45% increase on £374m in 2020. Overall, investments in Scottish commercial property reached £1.7bn in 2021, above the £1.4bn recorded in 2020. Glasgow led the way with £475m, ahead of Edinburgh (£429m) and Aberdeen (£54m).

Knight Frank’s Alasdair Steele highlighted the “almost insatiable appetite for retail warehousing and industrial property driven by changes to people’s shopping habits”, adding that this “only looks likely to continue in 2022.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Residential Property Review – February 2022

Promising signs in the UK housing market

Following a record-breaking 2021, continuing strong numbers of agreed sales and approved mortgages suggest transactions are likely to stay high over the next few months.

Net mortgage debt by individuals decreased slightly to £3.6bn in December 2021, according to the Bank of England. However, agreed sales and approved mortgages both remained ahead of pre-pandemic levels, the former being 11% above its 2017-19 average, according to TwentyCi.

Although new instructions remained in negative territory, the latest net balance (-8%) is the least negative since April 2021, according to the Royal Institution of Chartered Surveyors (RICS), a sign that persistently high buyer demand may soon come up against marginally higher available stock. Moreover, new instructions rose above the 2017-19 average in the last week of January, the first time this has happened since May 2021.

The rental market looks strong too, with rents rising by 7.4% nationwide in the year to November 2021, according to Zoopla. South West England saw the strongest rental growth (9.6%).

The Bank of England’s decision to increase Base Rate to 0.5% will have little immediate impact on existing homeowners on fixed-rate mortgages, analysts expect. Instead, it is first-time buyers, many of whom rely on higher loan-to-value mortgages which are more sensitive to rate changes, who could be harder hit.

Demand climbs higher across the board

UK Housing demand in January was 49% higher than the previous four year average, according to Zoopla, as pandemic trends spilt over into 2022.

Buyers’ desire for family houses soared even higher than during the final six months of the Stamp Duty holiday, signalling that the race for space, that characterised much of 2021, has not yet run its course. Last month, demand for family homes outside London was four times higher than the five-year average.

Flats were also popular at the start of 2022, with demand reaching its highest level for five years, propelled by the return of workers to the office.

Gráinne Gilmore, Head of Research at Zoopla, commented, “Even after nearly two years, the pandemic-led ‘search for space’ is one of the factors creating record demand for homes this month. The market is also being boosted by office-based workers re-thinking where and how they are living amid more hybrid working models.”

Housebuilders think build costs will keep rising

More than nine in 10 housebuilders expect the cost of building work on homes in England to increase in 2022, with a quarter predicting building costs will ‘increase significantly’ according to Knight Frank’s latest survey.

Nearly half of survey respondents said that last year’s build cost increases had already had a significant impact on their businesses. Similarly, 56% said that build costs were the primary factor adding pressure to their bottom line.

The increased cost of materials (65%) is seen as the main cause of rising build costs, ahead of Brexit-related complications (15%) and labour challenges (8%).

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

News in Review

“GDP grew robustly across the fourth quarter as a whole”

With the dust settling on the recent rise in Bank Rate and an increase in springtime inflation expectations, some positive news was released at the tail end of last week in the form of Q4 GDP data. The official statistics from the Office for National Statistics (ONS) show that GDP increased by an estimated 7.5% in 2021, following a 9.4% fall in 2020. Despite a fall back in December due to Omicron related restrictions, this was the fastest pace of growth in over 80 years.

The estimate exceeded analysts’ expectations which averaged 7.3% for Q4. However, ONS was keen to emphasise that owing to the challenges faced making estimates in the current conditions, their GDP estimate for Q4 is subject to more uncertainty than usual. Director of Economic Statistics at ONS Darren Morgan commented on the dataset, “GDP fell back slightly in December as the Omicron wave hit, with retail and hospitality seeing the biggest impacts. However, these were partially offset by increases in the Test and Trace service and vaccination programmes. Despite December’s setback, GDP grew robustly across the fourth quarter as a whole, with the NHS, couriers and employment agencies all helping to support the economy.”

The data meant the UK posted the fastest growth in the G7, beating growth in the US, which came in at 5.7%, France and Germany at 7% and 2.7% respectively, and Italy at 6.5%.

BCC plea for support

The results of a business survey recently conducted by the British Chambers of Commerce (BCC) make compelling reading, with UK firms expressing concerns over an array of cost pressures – just as households are feeling the squeeze, so too are businesses.

The key headline stats from the survey identify that almost three quarters (73%) of firms are increasing prices in response to rising costs and 62% pinpoint higher energy bills as a primary factor (rising to 75% for manufacturers). Meanwhile, almost two thirds (63%) cite increased wage bills as a key factor driving their prices higher.

The BCC is calling on the Chancellor to ease the mounting pressure on businesses by implementing a series of measures. Suggested measures include a temporary energy price cap for small businesses, a one-year delay to the planned National Insurance hike in April, a halt to any potential business taxes or cost increases, and extra financial support through the expansion of the energy bills rebate scheme for households to also include small firms and energy intensive businesses.

Director General of the BCC Shevaun Haviland commented, ”Without help from the Treasury to weather this storm many businesses, especially smaller ones, will be faced with a nearly impossible situation that will leave them with little choice but to raise prices… Unabated, the surging cost pressures produced by the cost-of-doing-business crisis will continue to lead to increased prices and fuel the cost-of-living crisis currently being faced by people across the country.”

Gradual rate increase favoured

Speaking last week, Huw Pill, Chief Economist at the Bank of England (BoE) expressed his belief that policymakers should gradually increase interest rates as opposed to adopting an aggressive approach. When talking about the expected income squeeze in the coming months, he confirmed his support for the hard-hitting message conveyed by BoE Governor Andrew Bailey last week, when he cautioned that wages would need to fall in real terms this year to control inflation.

Job vacancies at record high

Job vacancies in the last quarter hit another record of almost 1.3 million, according to latest data from ONS. Wages rose by 3.7% during this period but, when taking inflation into account, fell by 0.8% in real terms from a year earlier.

Markets update

After the US and UK advised citizens to leave Ukraine amid fears of a Russian invasion, uncertainty weighed on markets. Global stocks bounced back on Tuesday as concerns eased following Russian claims that 100,000 troops were returning to bases following training exercises.

The global benchmark for oil, Brent Crude, traded above $96 a barrel on Monday, its highest in seven years, before dropping back on Tuesday to around $93 a barrel. Fuel prices continue to soar at the pumps, with the AA reporting a record high of 148p a litre on Sunday.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

The fine print of home insurance T&Cs

Few people enjoy reading the fine details of insurance terms and conditions. However, failing to do so can leave you with insufficient cover or, in the worst cases, the wrong type altogether.

Cost, time or font?

A fifth of UK adults admit to not checking the T&Cs before taking out insurance. The explanations are varied: a quarter of respondents to a recent survey1 said the T&Cs were too long, while 17% said they only care about the cost, not the details. 15% said they don’t have time to worry about the detail, and 6% were put off because the writing was too small.

Just under a fifth said they occasionally read the T&Cs of their home cover, while a hearteningly high 50% said they always check the small print.

We can help

It can end up costing you a lot more if you take out an insurance policy without checking the fine print. We can help make sure you have the right level and type of cover in place.

1Go Compare, 2021

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Climate disclosures top corporate agendas in 2022

Regulators have been urged by the IMF to do more to prevent financial companies from making misleading claims concerning their environmental credentials – ‘Proper regulatory oversight and verification mechanisms are essential to avoid greenwashing.’  To achieve the expansion needed to reach the target of reducing worldwide carbon emissions to net zero by mid-century, will require a proper understanding by investors how their money is used.

From April the UK’s biggest companies will be required to make climate-related financial disclosures. Firms with a turnover in excess of £500m and at least 500 employees are expected to publish the climate-related risks they face. With the UK the first G20 country to make this compulsory, John Glen, Economic Secretary to the Treasury commented, “These requirements will not only help tackle greenwashing but also enable investors and businesses to align their long-term strategies with the UK’s net-zero commitments.”

The requirements for disclosure will be aligned to the Task Force on Climate-Related Financial Disclosures, backed by over 1,000 global financial institutions, and responsible for over $190trn of assets. Companies will need to “focus on the effects of climate change on their business” and communicate to investors how these are being managed, according to Chris Cummings, Chief Executive of the Investment Association.

The value of investments and income from them may go down. You may not get back the original amount invested.

Making savings for your children work

Many parents are keen to give their children a flying start financially by putting aside money throughout their childhood. Mums have been shown to be more likely to take the lead in this area, with most savings being held in cash products, such as cash Junior Individual Savings Accounts (JISAs) or premium bonds.

Mum’s the word

The research1 shows that 60% of those actively contributing to a child’s savings and investments were women. Researchers commented that this appears to fit in with a broader theme whereby women tend to connect investing to outcomes for their family more than to their own needs.

The survey also highlighted a drop-off in contributions as children get older. While 67% of new parents start saving or investing for their new-borns, this figure falls to 54% by the time children reach secondary-school age.

Is cash king?

The efforts of parents to save for their children is clearly admirable, but it is important to make sure that the money works hard for the long term. The JISA recently celebrated its tenth birthday, and the allowance has increased over the years from £3,600 a year in April 2011 to £9,000 a year today – currently stocks and shares JISAs make up just 3% of all accounts.

In times of rising inflation, sticking to cash can limit the impact of parents’ savings, as the real value of cash will be eroded over time. While not guaranteed, investment products have historically delivered better returns over the long term. It’s advisable to consider the options.

1Boring Money, 2021

The value of investments and income from them may go down. You may not get back the original amount invested.

News in Review

“I’m afraid we do have to raise Bank Rates… This is a lot of pressure on households”

Financial announcements came thick and fast last week, impacting household budgets and living standards for millions across the UK. As anticipated by many economic commentators, on Thursday the Monetary Policy Committee voted to increase Bank Rate from 0.25% to 0.5%, in an effort to dampen the pace of price rises over the longer term. Despite this move, the Bank of England (BoE) still expects inflation could reach 7.25% in April when energy bills are set to rise. This would be the fastest price growth since 1991 and is well above the Bank’s 2% target.

Earlier on Thursday, British energy regulators raised the energy price cap in England, Wales and Scotland by just under £700 from April. The same day, Rishi Sunak outlined plans to ease cost of living pressures, saying, “Right now, I know the number one issue on people’s minds is the rising cost of living. That’s why the government is stepping in with direct support that will help around 28 million households with their rising energy costs over the next year.”

The measures include:

  • All domestic electricity customers will receive an upfront discount worth £200 off their energy bills from October, the discount will then be automatically recovered from people’s bills in equal £40 instalments over the next five years
  • Households in England in Council Tax bands A-D will receive a £150 rebate, made directly by local authorities from April – this will not need to be repaid
  • Discretionary funding of £144m will be provided to support vulnerable people and individuals on low incomes who do not pay Council Tax, or who pay Council Tax for properties in Bands E-H
  • Devolved governments in Scotland, Wales and Northern Ireland are expected to receive £565m of funding as a result of the Council Tax Energy Rebate in England.

In an eventful day for the UK, Governor of the Bank of England Andrew Bailey commented on the MPC decision, “Unfortunately, we’ve got a squeeze from energy prices, and you see the Ofgem announcement this morning, and in order to counter the threat, and the risk that we see of further pressure coming from the labour market, I’m afraid we do have to raise Bank Rates. This is a lot of pressure on households, and we have to be very clear, a lot of pressure on those households who are less able to afford it.”

Markets react

Rising interest rates and inflation warnings across Europe weighed on global markets at the tail end of last week. European Central Bank President Christine Lagarde refused to rule out raising interest rates this year after its policymakers expressed ‘unanimous concern’ about soaring prices. Later, strong US labour data buoyed investors, who were energised by the higher-than-expected jump in jobs – a sign that the world’s biggest economy is recovering faster than hoped. On Tuesday the FTSE 100 briefly hit a new two-year high before slipping back as a fall in oil prices impacted the energy sector.

Levelling up strategy

On 2 February, the Levelling Up Secretary Michael Gove unveiled plans to transform the UK. Central to the plans announced are 12 national missions including local public transport systems becoming much closer to London standards, improving access to 5G broadband and the elimination of illiteracy and innumeracy in primary school leavers –  all to be achieved by 2030. Michael Gove commented, “Our 12 new national levelling up missions will drive real change in towns and cities across the UK, so that where you live will no longer determine how far you can go.”

“UK manufacturing made a solid start to 2022”

January’s IHS Markit/CIPS Purchasing Managers’ Index fell slightly from December (57.9 to 57.3) reflecting a small slowdown in the growth of new orders. Although input cost and output inflation are easing, supply chain constraint continues to prove challenging, but is regarded ‘passed its peak.’ Director at IHS Markit Rob Dobson commented on the recent data set, “UK manufacturing made a solid start to 2022, with growth of output accelerating as companies reported fewer supply delays.”

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Have you been ‘catfished’ by a property?

Not all prospective homebuyers will be familiar with ‘catfishing’ – a term from the online dating world to describe a person who presents themselves differently online to how they are in person. But a lot of them have suffered the catfishing experience at property viewings.

New word, familiar trend

A recent survey1 of homebuyers suggested that more than seven in 10 were ‘catfished’ by a property during their search. The most common issue was a property being much smaller than it appeared in photos.

Other let-downs included properties looking more outdated than expected, tiny rooms being advertised as extra bedrooms and poor build quality, which frequently led buyers to believe a property wasn’t worth the asking price.

Extra tools

The best way to avoid disappointment is by doing some extra research rather than relying on the estate agent’s photos. A floor plan can give you an idea of the actual size of each room, while a street view tool could give you a more realistic view of the state of the property.

1MoveStreets, 2021

Consumers and investors tune in to tackle climate change

More than half (57%) of consumers want their pension to be invested responsibly to help tackle climate change, but only one in seven people who have a pension have taken steps to invest it responsibly1.

Climate change and the environment are bigger concerns for most people than COVID-19 or the economy, according to a new study2. In all ten countries surveyed, climate change or the environment was the number one ESG (Environmental, Social and Governance) concern, reflecting the prominence of climate change in the global debate. Other environmental issues cited include waste management (8%), pollution (6%) and clean air (5%). Furthermore, over half of consumers are willing to boycott companies with poor ESG performance.

SEC Newgate Deputy CEO EMEA Tom Parker commented, “There is a widespread interest in and concern about the ethical and sustainability performance of governments and corporates. This is a truly worldwide phenomenon. The surprising consistency in these results illustrates that all local issues are global and that global issues are local.”

1Royal London, 2021

2SEC Newgate, 2021

The value of investments and income from them may go down. You may not get back the original amount invested.