Investors witnessed a surge of M&A activity in August as companies sought to make use of their high cash balances, and a slew of activity amongst mid caps drove up the FTSE 250 Index by 4.9% over the month.
- The CPI inflation rate eased to 2% in July
- Job vacancies reached record levels
- UK dividends rose by more than 50% YoY during Q2
To view the series of market updates through August, click here
Merger mania: investors witnessed a surge of M&A activity in August as companies sought to make use of their high cash balances, and a slew of activity amongst mid caps drove up the FTSE 250 Index by 4.9% over the month. In the UK’s supermarket sector, Morrisons accepted a £7 billion takeover from private equity firm Clayton, Dubilier & Rice following a fierce bidding war. Defence company Meggitt recommended a bid worth £6.3 billion from US motion and control technologies company Parker-Hannifin, and fund administrators Sanne accepted an offer worth £1.5 billion from financial services group Apex. The blue-chip FTSE 100 Index rose by 1.1% over August.
“Economic recovery is being undermined by ‘the worst shortages of staff and materials on record’”
Inflationary pressures ease slightly: the annualised rate of consumer price inflation moderated from 2.5% in June to 2% in July. Lower prices for clothing and footwear were offset to an extent by higher prices for second-hand cars. The Bank of England (BoE) expects the inflation rate to rise as high as 4% towards the end of the year before subsiding towards its 2% target; nevertheless, policymakers emphasised that they still regard current inflationary pressures as “transitory”. The central bank also revealed plans to start scaling back its asset purchases once its key interest rate – currently 0.1% – reaches 0.5% and is likely to consider selling assets once it has climbed to “at least” 1%.
Supply chain woes: economic recovery is being undermined by “the worst shortages of staff and materials on record”, according to IHS Markit/CIPS. Job vacancies reached their highest-ever level over the three months to July, rising to 953,000; meanwhile, the rate of unemployment fell from 4.9% to 4.7% and average annual wage growth reached 7.4%. The Confederation of British Industry (CBI) reported that manufacturers are experiencing their worst-ever shortages of stock, which are helping to stoke inflationary pressures.
Dividend recovery: UK dividends surged at a headline rate of 51.2% year on year during the second quarter of 2021 to reach £25.7 billion. According to Link’s UK Dividend Monitor, growth was driven by companies reinstating their payouts: dividend restorations accounted for 90% of the annualised increase. The three biggest dividend-paying sectors were mining, banking, and oil; looking ahead, Link expects full-year headline dividend growth of 24.4% over 2021, boosted by a rebound in payouts from the banking sector.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here