On 15 October 1987, Michael Fish famously stated ‘Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way. Well, if you’re watching, don’t worry, there isn’t!’. A famous predication which went horribly wrong within a matter of hours. I’m not going to be making any predictions today for the UK market heading into 2026, but headwinds and tailwinds are certainly the themes we all talk about in the marketplace.
The Budget has now passed and we hope that the market can look forward to a period of relative calm – the pre-Budget noise was more exciting than the in-Budget content. With the previous MPC meeting resulting in a vote to cut interest rates by 25 basis points to 3.75%, the question now is what this has really changed and whether we will see positive impacts over the long term. In the lead up to the next meeting, most concerned are simply watching the evolution of inflation and waiting for what comes next for rates – it’s almost cat and mouse.
We are likely to see stickier inflation especially through higher business rates and the minimum wage increases. There will need to be a balance between inflation and interest rates in order to stimulate growth – these rate cuts have a larger effect on growth than they do stickier inflation. Stimulating economic growth now needs to be the key driver for this Government or indeed any successor.
We are all looking at what can stimulate this market and the consensus is through the banks. With rates having fallen, confidence has subsequently improved. However, the debt market remains tied to valuations and the reliability of the cash flow in question, so the mood here remains one of caution. The path to renewed liquidity will rely on trust in asset valuations and debt transparency. Raised buyer equity requirements have meant higher returns needed and lower pricing – but equally this needs to be balanced with realistic vendor expectations. There are certain parts of the market which are, with the difficulty of attaining debt, dark spots. For example, the £7-10m single let market where it’s above the usual private lot size but below the institutions and too dry for the asset managers.
