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Inflation and Interest Rates

Adam Lawrence, Property entrepreneur and co-founder of Partners in Property, comments

Once more into the inflation breach, intrepid readers…thanks for indulging me. Unless you’ve lived under a rock for the past nine months, you’d have noticed that cost of living pressures have put quite a squeeze on the UK economy (not that the problem is limited to the UK). Prices of food and energy, and fuel, have been rocketing at close to 20%, 100% (even with the cap), and 30% respectively, since the start of 2022 - forget the 10% headline rate!

With wages up 7% in the private sector, this doesn’t add up, by a long, long chalk. The depth of the problem is so significant that in real terms, the average household is back to 1997 affordability levels (almost impossible to get your head around. No progress in 25 years. Lost decades!).

Still - things are now already bad, right? Many think we’ve seen the bulk of the problem. Spoiler alert; in my view, we really haven’t. We haven’t seen 50% of it in my view - more like 25-30%.
The Premiership (or perhaps Sunday League-ership) of “she who will always be known as the lettuce” Liz Truss is behind us, and will be remembered for the obvious economic consequences – higher mortgage rates because of her incompetence. However, a few in the property industry will light a small candle thanking her for moving the stamp duty threshold, her pro-landlord rhetoric (brief though it was), and also the capping of the energy bills - whilst this has been reversed (or more accurately, curtailed and the blank chequebook been put away), it still set the precedent for what we knew needed to happen.

This bout of inflation started because of Covid - right? Supply chains disrupted, just in time stocking systems blown apart, commodity mines and forests and quarries making decisions to close in 2020 when believing (mistakenly) that global demand would collapse. We need to not fixate on that argument - because it has already been proven to be insufficient. With costs of moving containers back down to pre-covid levels, or below; with demand not having actually dropped significantly on the energy front; with commodity prices generally returning to lower prices than they have been over the past 12-18 months (not across the board, sadly - and with the volatility that still exists, there’s every chance this will be out of date by the time this article comes to publication!).

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