In this week’s briefing, the UK’s state-backed pension scheme strikes a property investment deal, upcoming budget uncertainty impacts businesses, gold prices hit new records amidst concerns over inflation & more.
UK Property
Pension Fund and Insurer Join Forces to Invest £1bn in Build-to-Rent Sector
- The UK’s state-backed pension fund, Legal & General, and Dutch pension manager PGGM have recently announced a partnership to invest up to £1bn in build-to-rent properties.
- Beginning with an initial £350mn commitment, the deal aims to help meet housing demand by developing rental properties on urban brownfield sites.
- This partnership reflects the government's push to direct pension funds into sectors that boost the economy, particularly the housing sector, as we know current construction levels sit well below the new 375,000 p.a target quota.
- Elizabeth Fernando, CIO at Nest, emphasised that pension savings can play a significant role in alleviating the housing shortage, while also providing a solid investment opportunity for their members.
- L&G and PGGM have collaborated in this space for eight years, with L&G already deploying £3bn into the sector. “There’s a critical shortage of housing supply, coupled with increasing demand for high-quality rental homes,” said Fernando, speaking to the larger purpose behind the investment.
- With the UK government seeking further pension fund investments into key infrastructure, this initiative aligns with the government’s broader strategy. However, pension schemes face rising concerns from members about where their funds are invested, which Nest has promised to address through better reporting.
- UK Pensions Minister Emma Reynolds said, “This partnership showcases how our pensions sector can contribute to building communities and strengthening the economy.”
UK Economy
Business Confidence Dips as Uncertainty Looms Ahead of Labour’s First Budget
- Business confidence has been shaken ahead of Labour’s first budget in over a decade, scheduled for 30th October. Two S&P Global surveys revealed that the UK economy has been weighed down by anticipation of the upcoming budget, leading to stalled private sector growth.
- S&P Global reported that UK private sector growth slowed for the second consecutive month in September, particularly impacting services and manufacturing.
- Many businesses indicated a "wait-and-see" approach ahead of the budget, which has delayed investment decisions. Export orders also showed limited growth, adding to the overall subdued sentiment in the economy.
- CBI’s survey of manufacturers echoed this sentiment, with export order books hitting their weakest point since late 2020. Companies have reported reluctance from EU buyers, while demand from US clients saw a marginal uptick.
- Chancellor Rachel Reeves has positioned the budget as a necessary measure to address a tough economic inheritance.
- The upcoming fiscal policy seems to remain the most significant concern for private sector firms, with many delaying key decisions until clearer direction is provided.
UK Politics
Chancellor Rachel Reeves Promises Ambitious Growth in Labour’s First Budget
- Addressing the Labour Party conference, Chancellor Rachel Reeves set out her vision for the UK’s economy, promising that “Britain’s best days lie ahead.”
- Reeves has been under fire for tough rhetoric around economic conditions but reassured the party that her fiscal plans would prioritise growth and investment.
- Reeves also confirmed Labour’s decision to cut winter fuel payments for 10 million pensioners—a move criticised by trade unions. However, she cited the need to act swiftly to safeguard the UK's fiscal position.
- “We must secure the foundations of the economy before we can build towards long-term prosperity,” she said.
- Her speech also included plans to introduce free breakfast clubs in 750 primary schools starting in April, with a national rollout to follow.
- In what was widely seen as a signal of intent, Reeves promised that the budget would not increase income tax, VAT, or national insurance, further indicating the likelihood of a CGT or IHT increase.
- This growing possibility has accelerated the decision for many private investors to explore tax-efficient solutions to the threat of capital and asset erosion.
UK Investing
Gold Hits Record High Amid US Economic Fears
- Gold prices surged to a new high as analysts say concerns around inflation and the future of the US economy continue to drive demand for safe-haven assets.
- Spot gold, a publicly traded commodity, reached $2,622 per ounce by the end of the week, with forecasts suggesting that the precious metal could hit the $3,000 mark next year.
- Deutsche Bank analysts attributed the price hike to renewed concerns about inflation, following the Federal Reserve’s decision to cut interest rates by 50 basis points. “With the Fed cutting rates, inflationary concerns have intensified, leading to higher gold demand,” the report noted.
- As gold traditionally serves as a hedge against inflation, the metal's appeal has surged, particularly as long-term inflation risks remain stubbornly high in several economies.
- The US dollar’s slight decline also contributed to gold's appeal, with investors looking to safeguard against potential currency devaluation.
- The Federal Reserve hinted at further cuts to interest rates, with at least two more reductions expected before the year’s end. Analysts are watching gold closely as the market braces for further rate cuts and prolonged inflationary pressure.
Final Note
This week’s developments paint a mixed economic picture for the UK. While institutional investment into the build-to-rent sector provides hope for addressing housing shortages, uncertainty surrounding the Labour budget continues to weigh on business confidence.
Meanwhile, gold’s performance underscores investor concerns about inflationary pressures and the broader economic outlook across the waters, in the US, as central banks worldwide adjust their policies.
As the budget approaches, businesses and investors should stay alert to potential changes in fiscal policy, including the increasingly likely rise in Capital Gains (CGT) or Inheritance Tax (IHT). Taking proactive steps now will be essential to ensure the most tax-efficient investment strategies are in place.