Perry Noble, Head of Infrastructure, Federated Hermes Infrastructure
Although no date has been set, the UK election must take place before 28 January, 2025. Commentators currently expect Prime Minister Rishi Sunak to call the election in autumn 2024 but there remains an outside chance of an earlier date.
While neither party has published a manifesto setting out their policies for governing, both the opposition Labour Party and the Conservative Party have made various pledges that would, if implemented, affect spending on infrastructure over the next five years.
The reality is that the scope for significant investment in infrastructure, including on energy transition and the decarbonisation of the UK economy, is limited by the state of the country’s public finances. UK government debt equated to 97.7% of GDP at the end of 2023. It was less than 30% in 1990. Policies implemented to cushion the impact of the pandemic and the energy inflation spike as a result of Russia’s invasion of Ukraine have reduced the country’s borrowing capacity.
While the UK’s debt-to-GDP ratio sits in the middle of the G7 pack, the country spends more on servicing its debt than any other G7 economy. Both parties have pledged to reduce the debt mountain over the life of the next Parliament. As shown by Labour’s recent row-back on its green investment commitment, the sums do not permit both investment and reduced public borrowing. It is unlikely that private capital will fill the gap.
Vincent Nobel, Head of Asset-Based Lending, Federated Hermes Private Credit
From a real estate investor’s point of view, it’s important that the general election happens as soon as possible. The uncertainty around the timing of the election has been unhelpful; and the sooner we have some certainty the better. Above all, real estate investors value stability. With 16 different housing ministers since 2010, it is something that’s been lacking in recent years.
Whether or not a new Labour government can provide the required level of stability or address some of the challenges facing the sector is a moot point right now – and will be until after the electorate have had their say and cast their vote.
Mark Russell, Head of Fund Management, Real Estate, Federated Hermes
Occupier demand for appropriate and relevant real estate in the UK is robust, and many segments have recorded record rents. However, investor demand remains subdued because of wider macro uncertainties related to the hikes in interest rates by the Bank of England in its fight with inflation. Markets dislike uncertainty – and a lack of forward conviction around monetary policy, consequential debt terms and forward asset valuations, together with various unknowns around a general election later in the year, have been unhelpful.
Clarity of policy should emerge from the main political parties as we head towards the election. If a similar clarity around the direction of monetary policy also emerges, then we would expect investor confidence to rebound and market liquidity to return.
