Number Crunching.

Whilst number crunching today I thought of this. When interest rate base rate in the UK was 0.25% we were told that the annual rate of inflation was 2.5%, that’s 10 times more. Yesterday the interest rate was increased to 0.75% roughly 10 times less than the projected rate of inflation of 8%. We are told that increasing interest rates is a brake on increasing inflation. Primarily inflation is too much money chasing too few goods.

The reality however is that inflation presently is not 8%. I parked my car in London this week and the Pay to Park voice told me that the charge had increased by 43%. ( £5 an hour ) add to that Congestion and ULEZ charges plus increased fuel pricing to get there , the trip was around £80. ( sorry now I’m whinging ). The cost of one newspaper App increased 28% and food prices are going up over 20% ( I’m told ). The fact is inflation across the board is minimum 20% so expect interest rate base to be 2% by year end ( 10 times less ).

For house prices the 10 year flat line has now begun. If interest rates rise the cost of living in those homes increases and values fall , fact , plus with inflation in real terms the fall is exacerbated. Catch up of course eventually comes in the cycle of up , my view is that it will be in 10 years time. If you are selling you might just make it out the exit door but if you are buying fix your mortgage rate and take a deep breath for that 10 year ride ( how about just enjoying your time under the roof like it should be ).

Bricks and Mortar have historically been seen as a hedge against inflation which is true but the reality is now that most people can’t afford the hedge which is why renting will become more in demand and landowners will squeeze the rents out of those victim tenants. Misery comes in many guises.

I remember base rate interest being 16% and the world seemed as it was about to end. What really happened was that the pound currency got trashed and it’s going to happen again. This time round if base rates do hit 2% then there will be trouble as the cost of funding Government and personal debt will radically increase, there will be more victims. Buckle up now the ride is about to get very bumpy. People struggling to get on the property ladder forget that the ladder goes up and down, the secret is staying on it.