House prices in the UK jumped by 1.6% between June and July which was the first increase since the lockdown in March. This has surprised experts and is attributed to pent-up demand and the government’s stamp duty holiday.
The housing market’s revival is also supported by the increasing borrowing and mortgage approvals. In June, when the return to the market started, show 40,000 mortgages been approved from 9,300 in May. More broadly, consumer spending has also increased indicating a pick-up in economic activity. The Bank of England seems to think the picture has improved significantly as it has revised its forecast for the economy, from a 14% drop in GDP to a more modest 9.5%. However, the near-zero interest rates are here to stay in the medium term until the employment market stabilises.
However, the picture remains clouded as one in three UK employers said they are likely to cut jobs by October, which is when the furlough scheme is set to come to an end. Unemployment is expected to reach anywhere between 7.5% and 9.5% and remain higher than normal till well into 2022. Also, despite company borrowings reaching a new high, consumer lending is set to decrease by 16% this year which means that consumers are postponing big ticket purchases (excluding housing).
That said, many companies have returned to the M&A market as high share prices and an uptick in activity means they have the headroom to go after good but undervalued businesses.
What we see personally, is a lot of opportunistic buying in the real estate sector and two types of corporate activity; targeting companies that can bring extra capacity or assist with changing consumer trends, or distressed investing, many of them MBOs.
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