New PM must assert strong fiscal discipline, says Harris Associates

Harris Associates provides its views on the current market and the appointment of Rishi Sunak as the new UK Prime Minister.

New PM must assert strong fiscal discipline, says Harris Associates | PBSA News

At such a pivotal time in the market, Jamie Harris, Head of Student Accommodation – Capital Markets at Harris Associates offers his views on the current market and the appointment of Rishi Sunak as the new UK Prime Minister.

By Jamie Harris, Head of Student Accommodation – Capital Markets, Harris Associates

The exit of Liz Truss will likely restore a sense of calm in the markets, following a period of substantial volatility. The new Prime Minister will need to assert strong fiscal discipline to re-assure nervous investors that the UK is committed to reducing inflation and borrowing – working in tandem with the Bank of England. This should then result in lower interest rate rise expectations, likely causing less aggressive yield expansion expectations.  

Investors are looking forward to less volatility, allowing funds to be able to accurately price different asset classes, even at wider yields. The issue with the environment under Liz Truss, was a lack of clarity both on values and the direction of travel which we hope will clear. 

Rishi Sunak has been announced as the new prime minister and is seen by markets as being committed to ‘sound the economic management’. The sterling shows positive signs for Sunak to stabilise the economy, with a new debt-cutting plan set to be announced by chancellor Jeremy Hunt at the end of October. The new Prime Minister. will need to maintain a strong fiscal discipline to re-assure investors that the UK is committed to reducing inflation and borrowing.

The purpose-built student accommodation (PBSA) sector is well-placed to benefit from a time of greater clarity, due to the ability to increase rents year-on-year as an inflationary hedge. The student accommodation market is the only sector that saw consistent rental growth during the previous financial crisis, which we expect to be the case in this circumstance given the robust occupational market. 

PBSA is a counter-cyclical sector, which in times of economic crisis, benefits from more students going to university to ‘up skill’ in a competitive jobs market.