WEBVTT - How UK House Prices Could Fall By 30% 0:00:00.160 --> 0:00:03.360 But if you if you see, if we've gone back 0:00:03.360 --> 0:00:07.720 to Mars and they see we're gonna put interestries up 0:00:07.720 --> 0:00:10.000 from one point percent to four and a half percent, 0:00:10.600 --> 0:00:12.840 and you said places were only going to four by 0:00:12.840 --> 0:00:15.320 ten percent in the next year, people would thinking it optimistic. 0:00:15.520 --> 0:00:18.480 So actually, certainly, certainly it does not sound it's not 0:00:18.520 --> 0:00:23.200 crazy way by any means. Okay, so effectively, John, Just 0:00:23.280 --> 0:00:25.920 for the record here everybody, John is predicting our housepress 0:00:25.960 --> 0:00:30.760 fall of significantly more than thirty not significantly more than 0:00:34.159 --> 0:00:47.199 that is too fortune, but I mean definitely funny. That 0:00:47.400 --> 0:00:50.120 was a Blueberg senior reporter and author of the Money 0:00:50.120 --> 0:00:54.280 Distilled newsletter, John steppec in a Twitter space, one of 0:00:54.280 --> 0:00:57.600 our best ever performing Twitter spaces, something to do perhaps 0:00:57.600 --> 0:01:01.600 with the very eye catching four cars or doominated forecast 0:01:01.640 --> 0:01:06.800 for a huge drop in the housing market. I'm David 0:01:06.800 --> 0:01:09.520 Merritt and this is in the City, Bloomberg's podcast, connecting 0:01:09.520 --> 0:01:11.440 you to the stories and the voices at the heart 0:01:11.560 --> 0:01:14.400 of the City of London. So, as promised, this week, 0:01:14.440 --> 0:01:16.320 we are going to talk about the outlook for both 0:01:16.360 --> 0:01:19.560 housing and inflation in the UK, and to do that 0:01:19.600 --> 0:01:22.720 we're joined by our senior reporter Phil Audrick Are UK 0:01:22.959 --> 0:01:25.880 eco expert and senior reporter John Steppeck, author of the 0:01:25.880 --> 0:01:28.880 Money Distilled newsletter and as you heard the voice behind 0:01:29.319 --> 0:01:32.720 an epic prediction for the housing market. John, let's start 0:01:32.760 --> 0:01:35.440 with you, still sticking with this third episode number. I 0:01:35.480 --> 0:01:39.440 think it's sent chills through London and Britain to hear 0:01:39.480 --> 0:01:41.679 you say that their house prices might lose a third 0:01:41.720 --> 0:01:45.240 of their value. Yeah, I mean late said that. It's 0:01:45.319 --> 0:01:48.200 very careful to see in real tims, which is after inflation, 0:01:48.240 --> 0:01:52.200 and obviously inflations relatively high at the moment um. Rightly, 0:01:52.240 --> 0:01:53.720 if you look bright in history, it's not like that 0:01:53.920 --> 0:01:59.480 draystick fordcasts. Assuming that our host, please crash actually happens. 0:02:00.160 --> 0:02:03.080 The average and again real terms over the last four 0:02:03.240 --> 0:02:06.920 house price crashes are so since the nineteen seventies has 0:02:06.960 --> 0:02:09.880 been for prices to fall by about twenty seven twenty 0:02:09.919 --> 0:02:14.200 eight percent. So in the seventies, for example, house places 0:02:14.240 --> 0:02:17.320 never fell in nominal terms, but because of the high 0:02:17.440 --> 0:02:19.560 rate of inflation during that period, you actually get a 0:02:19.600 --> 0:02:22.840 real terms fall of about thirty percent between nineteen seventy 0:02:22.840 --> 0:02:26.320 three and nineteen seventy seven, whereas in the two thousand 0:02:26.360 --> 0:02:29.280 and eight crash. For example, you had twenty seven percent 0:02:29.360 --> 0:02:32.440 fall from peak to trough. Most of that was nominal 0:02:32.560 --> 0:02:37.360 terms because inflation obviously was absolutely tiny after the financial crisis. 0:02:37.400 --> 0:02:39.200 So the act in terms of the actual scale with 0:02:39.280 --> 0:02:42.519 the peak to trough fall is not actually outlined. Is 0:02:42.639 --> 0:02:46.040 it's not an outlier? Um. The question is obviously, look 0:02:46.080 --> 0:02:49.240 why would that happen? And the very simple answers is 0:02:49.240 --> 0:02:51.880 because interest rates have gone up. People always talk about 0:02:51.880 --> 0:02:56.359 how physical supply will prop up the market, or you 0:02:56.400 --> 0:03:00.240 know there's a shortage of housing, etcetera, etcetera, but not 0:03:00.760 --> 0:03:03.000 the physics. I mean, you can complain about the physical 0:03:03.000 --> 0:03:06.000 supply houses in this country. You can think that planning 0:03:06.040 --> 0:03:08.600 systems to restrictive. There are all manner of reasons to 0:03:08.680 --> 0:03:11.160 reform the way we built houses and what we do 0:03:11.240 --> 0:03:13.919 the house seas and how we sell houses, etcetera, etcetera. 0:03:14.240 --> 0:03:16.600 For the fundamental driver of the price and the reason 0:03:16.639 --> 0:03:19.400 that's so unaffordable just now, it is because interest rates 0:03:19.400 --> 0:03:22.000 have been on a secular downtrend for about thirty five 0:03:22.400 --> 0:03:26.520 forty years. So when interest rates go up, the amount 0:03:26.560 --> 0:03:29.760 you can borrow for a mortgage goes down, which means 0:03:29.760 --> 0:03:31.959 that basically the price of houses has to come down. 0:03:32.000 --> 0:03:35.800 It's a kind of it's almost an arithmetical uh, kind 0:03:35.840 --> 0:03:40.960 of logical following um. And so obviously interest rates have 0:03:41.000 --> 0:03:43.760 gone up this year, they've started to take down a 0:03:43.800 --> 0:03:45.920 little bit. I think it's very unlikely they'll go back 0:03:45.920 --> 0:03:48.320 to zero s because that was an aberration. Well, now 0:03:48.520 --> 0:03:51.080 I think in an era inflation is going to be 0:03:52.160 --> 0:03:55.200 higher on a kind of long term basis. And even 0:03:55.240 --> 0:03:57.000 if that just means that the average is about three 0:03:57.000 --> 0:03:59.200 percent over the next ten years, that means interest rates 0:03:59.240 --> 0:04:01.120 are going to be hiring again. And that means that 0:04:01.160 --> 0:04:04.040 house places have to connect. So you are sticking pretty 0:04:04.080 --> 0:04:06.960 vamily by this. It sounds like it might even be 0:04:07.040 --> 0:04:10.800 a sort of modest forecast. Steve, you're training and taste 0:04:10.800 --> 0:04:16.840 me strong, go stronger, absolutely fill. What's the implications for 0:04:16.880 --> 0:04:19.320 the economy as a whole of it? People losing a 0:04:19.320 --> 0:04:21.800 third of the value of their houses. Well, that's the 0:04:21.839 --> 0:04:25.120 interesting because that the prices set by the marginal buyer. Right, 0:04:25.160 --> 0:04:27.520 So just because somebody doesn't have as much money to 0:04:27.560 --> 0:04:29.640 spend on the house because they can't get as large 0:04:29.640 --> 0:04:31.640 a mortgage. Now the interest rates have gone on means 0:04:31.680 --> 0:04:33.480 that they will bid less, and so then all these 0:04:33.480 --> 0:04:36.400 house prices which will which are related to you know, 0:04:36.440 --> 0:04:38.640 if you're buying a two bed house and there's another 0:04:38.640 --> 0:04:40.400 two bed house nearby, it's going to have a new 0:04:40.440 --> 0:04:42.479 value because that's the that's the new market value. And 0:04:42.520 --> 0:04:44.960 so if you're staying put, it doesn't really make an 0:04:44.960 --> 0:04:48.560 awful lot of difference. That The factors which really are significant, 0:04:48.600 --> 0:04:51.080 obviously are whether unemployment is going to be shooting up 0:04:51.080 --> 0:04:55.200 and people are selling into negative equity because they have 0:04:55.360 --> 0:04:57.920 to get rid of this enormous debt trap that they're 0:04:57.960 --> 0:05:00.880 stuck with, which is the mortgage, and so that that's 0:05:00.920 --> 0:05:04.080 basically the most the most critical factor in terms of 0:05:04.200 --> 0:05:06.080 the economy. The other, the other, the other impact is 0:05:06.080 --> 0:05:08.800 obviously the wealth effect. People don't feel that they've got 0:05:08.800 --> 0:05:11.160 this enormous amount of wealth which they can they can 0:05:11.240 --> 0:05:14.840 release if they need to, then that just makes them 0:05:14.920 --> 0:05:17.560 spend a bit less. But before the financial crisis, people 0:05:17.600 --> 0:05:21.560 were releasing their equity. There's these equity release mortgages. People 0:05:21.720 --> 0:05:24.280 take more and more money out of their house as 0:05:24.279 --> 0:05:26.280 the house's value went up, and then they would spend 0:05:26.279 --> 0:05:28.479 all this extra money. But that's really not been a 0:05:28.560 --> 0:05:32.680 sort of something that's happened since the financial crisis, so 0:05:32.960 --> 0:05:35.000 because they haven't been able to write, the banks aren't 0:05:35.200 --> 0:05:37.560 well doing those schemes, and they can you can remore. 0:05:37.600 --> 0:05:40.120 You could remortgage every time you've paid off like twenty 0:05:40.160 --> 0:05:43.120 percent or whatever, I know, tem tempers, and you could 0:05:43.120 --> 0:05:46.320 then re mortgage up again. And also if the value 0:05:46.320 --> 0:05:48.960 of the house has gonna be and you have you know, viewing, 0:05:49.160 --> 0:05:51.440 your earnings have increased, you could remortgage again. But it 0:05:51.560 --> 0:05:53.400 just hasn't been as much of a factor. So I 0:05:53.480 --> 0:05:57.279 don't think the the economic impact of falling house prices 0:05:57.560 --> 0:06:00.960 will be as dramatic as as has been seen in 0:06:01.000 --> 0:06:03.640 the past, for the for that sort of slightly muted 0:06:03.680 --> 0:06:06.719 wealth effect, and also for the fact that really what 0:06:06.720 --> 0:06:10.440 what will define whether the housing crisis trans transmorse into 0:06:10.440 --> 0:06:13.479 a absolute economic crisis is if it's accompanied with this 0:06:13.600 --> 0:06:17.480 unemployment shock, which then causes massive sales. And the only 0:06:17.520 --> 0:06:19.280 part of them housing Mike where you can really see 0:06:19.320 --> 0:06:21.120 that happening a little bit is the buy to let 0:06:21.560 --> 0:06:25.000 and where they're all on interest only deals, so they're 0:06:25.000 --> 0:06:27.680 going to get really whacked by the increase in interest rates. 0:06:27.720 --> 0:06:29.680 That's gonna be that's gonna be a direct that's gonna 0:06:29.680 --> 0:06:32.599 be felt much harder than on the repayment side. Um, 0:06:32.640 --> 0:06:34.240 and they're going to start I mean, the banking was 0:06:34.240 --> 0:06:36.760 saying this last week that they're going to start selling. 0:06:36.800 --> 0:06:38.840 They expect the bit to let guys to start selling 0:06:38.880 --> 0:06:41.400 and that will put more pressure on those sort of 0:06:41.440 --> 0:06:45.240 marginal prices. So you're you can get you can get 0:06:45.279 --> 0:06:50.159 closer to to the apocalyptic forecast from John. But you know, 0:06:50.160 --> 0:06:52.520 so if John's right about interest rates sticking around that, 0:06:52.760 --> 0:06:54.640 you know, even if it's three percent or so for 0:06:54.680 --> 0:06:57.400 a while, there's this rolling impact, doesn't there from that 0:06:57.440 --> 0:07:01.840 of people remortgaging or their deals, they're very low rate 0:07:01.920 --> 0:07:04.120 deals coming to an end. I just did mine a 0:07:04.120 --> 0:07:07.160 couple of months ago, and it's a bit of a shock, right, 0:07:07.200 --> 0:07:09.320 Suddenly your payments are going up a lot. How are 0:07:09.320 --> 0:07:11.120 we seeing that effect? And that's only gonna get worse, 0:07:11.120 --> 0:07:13.200 isn't it? Throout the people are gonna have less money 0:07:13.240 --> 0:07:15.280 to spend in this economy for years to come on 0:07:15.440 --> 0:07:17.080 they because of what's happened to interest rate, there will 0:07:17.080 --> 0:07:20.360 be that people will have less. But you know, in 0:07:20.360 --> 0:07:23.080 a way, having the fixed deal means that you can 0:07:23.280 --> 0:07:25.040 plan for it. You've got you know, you know it's 0:07:25.040 --> 0:07:27.280 coming down the line, and you can start you can 0:07:27.320 --> 0:07:30.680 start planning for it. That will depress consumer spending. But 0:07:30.760 --> 0:07:34.160 the it's not having as dramatic effects as you know, 0:07:34.240 --> 0:07:36.000 these rate rises as would have had in the past. 0:07:36.040 --> 0:07:40.400 You've got the banksters. Over the next year, we're going 0:07:40.480 --> 0:07:44.960 to have four million mortgages in total, either they're on 0:07:45.120 --> 0:07:47.000 a one point three or on standard variable rates so 0:07:47.000 --> 0:07:49.920 they're just floating um. And there's another two point seven 0:07:50.200 --> 0:07:53.920 uh that are fixed rates that are going to be refixing. 0:07:54.160 --> 0:07:57.840 Then you also have actually about five million people in 0:07:57.920 --> 0:08:02.840 private rent rental who will probably get all of these 0:08:02.840 --> 0:08:05.400 interest rates passed directly onto them as their as their 0:08:05.400 --> 0:08:08.680 rents go up as the landlord tries to recover his 0:08:08.680 --> 0:08:11.200 his higher mortgage costs. So that's about nine you know, 0:08:11.280 --> 0:08:14.720 that's about nine million households out of at twenty eight 0:08:14.880 --> 0:08:18.520 million households who are going to feel directly affected by this. 0:08:19.000 --> 0:08:21.640 There's going to be some blood path there's going to 0:08:21.680 --> 0:08:25.200 be some horrible, horrible experiences for some people that isn't inescapable. 0:08:25.240 --> 0:08:27.360 But when you're looking from the economic point of view, 0:08:27.360 --> 0:08:30.160 looking at the aggregate picture here and that that isn't 0:08:30.280 --> 0:08:32.560 enough to make you terrified that there's going to be, 0:08:32.920 --> 0:08:35.840 you know, some kind of economic devastation through this channel. 0:08:36.120 --> 0:08:41.000 I might take anything. I mean, rates gonna peak anytime soon, John, 0:08:41.040 --> 0:08:43.240 have you watched your fore cost for NAT year? I mean, 0:08:43.240 --> 0:08:44.960 obviously the market, I think streets are going to peak 0:08:45.040 --> 0:08:46.720 or the Bank England entrist street is going to pick 0:08:46.800 --> 0:08:48.560 up a bit four and a half percent next year. 0:08:49.160 --> 0:08:53.800 And I can see the inflation is properly highs peaked, 0:08:54.240 --> 0:08:55.760 And I don't actual think inflation is going to be 0:08:55.760 --> 0:08:58.160 the big body fund next year. I think, toy, we 0:08:58.200 --> 0:09:00.280 have the supplieses will start coming in as that we 0:09:00.320 --> 0:09:04.520 get to four and it doesn't go back down to 0:09:04.640 --> 0:09:07.360 what we've seen in the past. I think that's one thing. 0:09:07.600 --> 0:09:10.199 But I mean, I agree we haven't the Phillips said, 0:09:10.559 --> 0:09:13.280 I don't think the housing market itself is as much 0:09:13.320 --> 0:09:15.640 of a problem for the wider economy as it was 0:09:15.720 --> 0:09:18.199 in for example, two thousand and eight. Um. You know, 0:09:18.280 --> 0:09:20.839 it's We've had quite a lot of statistics point out 0:09:20.880 --> 0:09:23.360 that the people who have mortgages at the moment tend 0:09:23.400 --> 0:09:26.600 to be better off than you know, the average because 0:09:26.640 --> 0:09:28.360 affordability is so bad. I mean, a lot of people 0:09:28.360 --> 0:09:30.520 have just been squeezed out of there. You know, in 0:09:30.559 --> 0:09:33.080 banks aren't as vulnerable to it either. And the other 0:09:33.160 --> 0:09:36.719 good things that wages are going up, they're only growing 0:09:36.760 --> 0:09:39.600 up in nominal terms, cause inflation is so high we're 0:09:39.600 --> 0:09:41.960 still kind of losing it in real terms. But I mean, 0:09:42.000 --> 0:09:44.400 the private sector can average pay rise at the moment 0:09:44.480 --> 0:09:48.040 is over six percent, which is quite don't certainly chunky 0:09:48.080 --> 0:09:51.560 compared to the recent past. If that can continue by 0:09:51.679 --> 0:09:55.000 inflation comes down, then you know you've got you know, 0:09:55.400 --> 0:09:58.600 cross your fingers. Maybe you get a point where real 0:09:58.640 --> 0:10:02.280 wages actually start to go positive um and as long 0:10:02.280 --> 0:10:05.400 as unemployment doesn't pick up, then you could have a 0:10:05.400 --> 0:10:09.160 pretty shallow recession and not an awful outcome again and 0:10:09.280 --> 0:10:12.599 aggregate um and still have how spaces coming down and 0:10:12.640 --> 0:10:16.920 actually affordability improving. And then maybe take this sort of 0:10:17.559 --> 0:10:20.600 the silver lining for this for those people who want 0:10:20.600 --> 0:10:23.640 to buy a house, right, it's actually kind of they're 0:10:23.640 --> 0:10:24.920 going to sit on their hands for a bit, right 0:10:24.960 --> 0:10:28.679 and see that the thirty percent drop in prices, it's 0:10:28.679 --> 0:10:30.000 going to mean a lot of more people can get 0:10:30.000 --> 0:10:31.040 in the house and ladd al right, I mean it's 0:10:31.040 --> 0:10:32.480 going to be and that is that actually gonna be 0:10:32.559 --> 0:10:35.800 that positive for the economy as a whole. It would 0:10:35.800 --> 0:10:38.760 be good politically. I mean, I think something that well, 0:10:38.800 --> 0:10:41.000 I mean the overall eventually be a good thing. I mean, 0:10:41.000 --> 0:10:44.800 it's I think we've kind of perhaps lost sight of 0:10:44.880 --> 0:10:48.240 the fact that houses really should be affordable. You know. 0:10:48.320 --> 0:10:50.079 It's like, at the moment, I mean accordantly were in 0:10:50.360 --> 0:10:54.160 s how space affordability relative to income, the average hosen now, 0:10:54.160 --> 0:10:56.920 of course nine times the average income, and that is 0:10:56.960 --> 0:11:00.079 the highest ever they can A long run average is 0:11:00.120 --> 0:11:01.719 closer to something like three and a half four and 0:11:01.800 --> 0:11:04.000 a half, and that has ticked higher over the years. 0:11:04.000 --> 0:11:07.640 About nine is nine is ridiculous, um, And really I 0:11:07.679 --> 0:11:10.040 don't think that you know, in an ideal world would 0:11:10.040 --> 0:11:13.280 be living in a country where everyone could afford to 0:11:13.280 --> 0:11:14.920 buy a house or rent a house and they weren't 0:11:14.920 --> 0:11:18.760 constantly worrying about the impact of the coast of simply 0:11:18.760 --> 0:11:21.440 having a roof over their heads on their standard of living. 0:11:21.520 --> 0:11:26.800 It's not great for productivity or intergenerational stability and all 0:11:26.840 --> 0:11:29.840 those things. So if we get a decent sized correction 0:11:29.880 --> 0:11:32.320 in the house and market, then you take some of 0:11:32.360 --> 0:11:38.320 the sense that young people have of, you know, basically futility. Um, 0:11:38.400 --> 0:11:40.000 it is certainly a sense I get from talking to 0:11:40.040 --> 0:11:41.800 some of them even around to here. And you know, 0:11:41.880 --> 0:11:44.240 if you're working in the Bloomber building, you're not going 0:11:44.320 --> 0:11:47.880 to be the most deprived young person in the world. So, um, 0:11:47.920 --> 0:11:49.760 you know, I think it would be a very positive thing. 0:11:49.800 --> 0:11:53.000 You see some sort of relief on the house price front. Yeah, 0:11:53.040 --> 0:11:55.480 they so that. I mean because obviously the barrier has 0:11:55.520 --> 0:11:58.520 been deposits. Um, you can't get the deposit too. You 0:11:58.559 --> 0:12:00.079 can get the debt, you can't get the depot that. 0:12:00.160 --> 0:12:03.240 So if the property price comes down to you're more 0:12:03.280 --> 0:12:05.080 likely to be able to get the deposit. Plus, if 0:12:05.120 --> 0:12:06.760 your salary has gone up by six and a half 0:12:06.800 --> 0:12:09.600 percent and you know you're earning four percent on what 0:12:09.640 --> 0:12:12.560 little savings you have or whatever, then um, you know 0:12:12.600 --> 0:12:14.320 it just it's all kind of moving in the right 0:12:14.400 --> 0:12:19.280 direction in terms of helping, uh, that intergenerational furnace, that 0:12:19.400 --> 0:12:21.880 that equity, which is part of social division at the moment, 0:12:21.920 --> 0:12:25.240 so absolutely would be in some ways were supposed to 0:12:25.240 --> 0:12:27.200 be in recession. Right, this is what we're being told. 0:12:27.679 --> 0:12:32.280 And you said, John, maybe that's quite an optimistic view 0:12:32.440 --> 0:12:34.200 that perhaps we come out of this it's a little 0:12:34.200 --> 0:12:36.000 bit shallow. At the Bank of England have said some 0:12:36.000 --> 0:12:39.000 pretty bad things about but the forecast, what sort of 0:12:39.040 --> 0:12:41.439 recession are we really going to be in for the 0:12:41.480 --> 0:12:42.640 rest of the next year and when are we going 0:12:42.679 --> 0:12:44.120 to come out of it? Fair? The Bank of England's 0:12:44.120 --> 0:12:47.440 forecast was based on a projection for interest rates to 0:12:47.440 --> 0:12:49.720 to get to something like five and a half percent. 0:12:50.559 --> 0:12:52.839 I feel like that's not gonna happen, but I mean 0:12:53.440 --> 0:12:57.360 it may, but there's every single everything is aligned. I mean, 0:12:57.360 --> 0:13:01.960 but politically and on monetary policy, there's no desire to 0:13:02.080 --> 0:13:05.200 go to that level of interest rate. At the moment 0:13:05.400 --> 0:13:08.079 interest rates of three and a half percent, they may 0:13:08.080 --> 0:13:11.120 get to to four and a half percent, but even 0:13:11.160 --> 0:13:14.880 even at three percent, the banking was forecasting a shallow recession. 0:13:15.200 --> 0:13:17.960 But I had this weird number in its forecast, which 0:13:18.000 --> 0:13:21.440 was that the households typically in a recession to go 0:13:21.520 --> 0:13:24.000 into their savings because they that's what you're savings are 0:13:24.000 --> 0:13:26.800 there there your buffer And in this forecast the Bank 0:13:26.840 --> 0:13:29.840 of England has them increasing their savings, so they're saving 0:13:29.880 --> 0:13:32.160 more and more, which just you know, if you and 0:13:32.200 --> 0:13:34.040 the o b R had a very different take on that. 0:13:34.120 --> 0:13:36.000 They said that people will use their savings and as 0:13:36.000 --> 0:13:39.040 a result, they said, the forecast in the o B 0:13:39.679 --> 0:13:42.200 report was much shallower than the Bank of England. And 0:13:42.520 --> 0:13:47.000 there's no individual macroeconomic instability. There isn't like massive debt 0:13:47.040 --> 0:13:49.560 overhanging the corporate sector. There isn't a massive debt overhanging 0:13:49.600 --> 0:13:52.120 the in the household sector. To be compared with the 0:13:52.600 --> 0:13:56.040 financial crisis. The banking sector isn't about to collapse because 0:13:56.040 --> 0:13:59.040 it's running on paper thin levels of capital. There hasn't 0:13:59.040 --> 0:14:02.240 been a splurred in business investment or commercial property building. 0:14:02.320 --> 0:14:04.760 You can't see something which is just going to cause 0:14:05.000 --> 0:14:08.840 the economy to to just implode at the moment. So 0:14:08.960 --> 0:14:12.200 it's just the interest rate effect and people and it's 0:14:12.240 --> 0:14:16.280 really that's that that's what's bearing down on on on 0:14:16.320 --> 0:14:20.120 the growth prospects of the country by taking demand of 0:14:19.440 --> 0:14:23.320 the economy. But the I don't I just don't see 0:14:23.880 --> 0:14:26.440 that as being anything other than this kind of brief, 0:14:26.440 --> 0:14:28.960 shallow recession. So why why is the Bank of England 0:14:29.000 --> 0:14:34.560 being so gloomy? What is it? What's wrong? It's a 0:14:34.600 --> 0:14:37.960 good question, um, I mean, obviously there's been a lot 0:14:38.080 --> 0:14:40.640 on Moyle and I mean, am I like to see 0:14:40.680 --> 0:14:45.960 the ask covering on this? I think that I think 0:14:45.960 --> 0:14:48.000 there is an element to that because you know, there's 0:14:48.040 --> 0:14:50.840 quite a lot of might slang in between the politicians 0:14:50.840 --> 0:14:54.880 in the Bank England during the over the over the 0:14:54.880 --> 0:14:57.200 summer in fact, right, you know, the bean counters, and 0:14:58.200 --> 0:15:01.640 they had also the bank had a very prerogative in 0:15:01.720 --> 0:15:04.640 the in its forecast because at that point Marcus are 0:15:04.640 --> 0:15:05.880 saying rates are going to go to five and a 0:15:05.920 --> 0:15:07.920 half percent, and it wanted to send a very clear 0:15:08.640 --> 0:15:11.680 signal to the markets that you're completely wrong, boys, just 0:15:12.000 --> 0:15:14.680 you're you're just out of the park wrong. So we're 0:15:14.680 --> 0:15:17.080 going to are using your projections, we're going to show 0:15:17.120 --> 0:15:19.360 you that the scale of the recession that that's causing 0:15:19.640 --> 0:15:22.080 is so nonsensical that we're never going to do that. 0:15:22.200 --> 0:15:24.960 So they were just so this is the communication mechanism, 0:15:25.000 --> 0:15:27.520 which seems to be a little bit sort of obtuse 0:15:27.680 --> 0:15:31.040 to have to communicate in this way. But so the 0:15:31.120 --> 0:15:34.280 overstatement of the recession is effectively a way of saying 0:15:34.360 --> 0:15:36.200 it's you know, our rates are never going to go 0:15:36.280 --> 0:15:38.520 that high. That was that was the main point of 0:15:38.560 --> 0:15:41.840 the of the recession. Forecast, which is obviously at the 0:15:41.840 --> 0:15:45.320 same point, telling everyone to prepare for a catastrophic recession 0:15:45.720 --> 0:15:48.480 is not particularly good signaling to the general public. But 0:15:48.560 --> 0:15:50.480 you know that they're kind of thinking about I guess 0:15:50.560 --> 0:15:52.320 thinking about what you said, I mean, over the summer. 0:15:52.400 --> 0:15:54.480 It's kind of feels like a lifetime ago, perhaps, But 0:15:54.520 --> 0:15:56.280 you know, they did have to step in to stop 0:15:56.280 --> 0:15:59.640 the sort of systemic collapse of the pensions industry, you know, 0:15:59.800 --> 0:16:02.680 So the firefighting that happened over the road there from 0:16:02.680 --> 0:16:06.640 where we're sitting, it was real, right, And so maybe 0:16:07.120 --> 0:16:13.040 that explains some of the tricky thing where they had 0:16:13.080 --> 0:16:16.360 to be that forecast kind of between statements as well, 0:16:16.440 --> 0:16:19.480 didn't they saw they weren't really able to take a 0:16:19.560 --> 0:16:21.880 count of what the first school statement may on me. 0:16:21.920 --> 0:16:24.240 And I see there's an element that they've being a 0:16:24.320 --> 0:16:26.520 kind of warning shot across the government's posed in his 0:16:26.600 --> 0:16:28.280 way out of the second point, because they've they've the 0:16:28.440 --> 0:16:32.880 latest bank of the latest rate setting minutes say that 0:16:33.040 --> 0:16:36.360 about a third of the forecast recession has been removed 0:16:36.760 --> 0:16:42.160 by the by the fiscal stimulus in the in the 0:16:42.200 --> 0:16:47.000 autumn statement, right, so it's better already, there's already better. 0:16:47.560 --> 0:16:50.720 So what else could spoil the party next year? John, 0:16:50.760 --> 0:16:52.600 do you think I mean, you know, it sounds like 0:16:52.600 --> 0:16:55.720 we're gonna we're gonna come out of recessions sooner. Inflation 0:16:55.800 --> 0:16:58.240 is already past the peak. You're not worried about anything 0:16:58.280 --> 0:17:00.600 next year? I mean, yeah, I mean think the main ones, 0:17:00.600 --> 0:17:02.800 the energy places. I think it's probably the biggest wiy 0:17:02.800 --> 0:17:05.800 old card, and that could go. That could go two weeks, 0:17:05.960 --> 0:17:09.200 you know, so energy places could follow a lot faster 0:17:09.400 --> 0:17:13.120 than we expect, and that would be great obviously, But equally, 0:17:13.320 --> 0:17:15.640 you know, there's old manner the reasons that you could 0:17:15.680 --> 0:17:18.600 potentially spake in either oil prices or gas bases on 0:17:18.760 --> 0:17:22.840 both um, and that would definitely make things much trickier 0:17:23.359 --> 0:17:26.280 a lot. It does end join employment. I mean, if 0:17:26.400 --> 0:17:29.080 unemployment starts to go up, then I do think to 0:17:29.119 --> 0:17:33.000 an extent all bits out off it could give strange. 0:17:33.320 --> 0:17:36.760 So this recession is this is not an unemployment led recession, 0:17:36.840 --> 0:17:38.440 is it. At the moment, we're still seeing the jobs 0:17:38.480 --> 0:17:41.560 market hold up, and we're seeing those pay increases as 0:17:41.560 --> 0:17:43.520 well that you mentioned. It's it's a bit of an 0:17:43.560 --> 0:17:46.480 odd feeling for recessions that people are keeping their jobs. Yeah, 0:17:46.760 --> 0:17:50.520 at the moment and the at the moment that there's 0:17:50.600 --> 0:17:53.200 still over a million vacancies out there. So the thinking 0:17:53.320 --> 0:17:56.560 is that the companies are just going to stop planning 0:17:56.600 --> 0:18:00.359 to hire people. And so that's that's what you know, 0:18:00.359 --> 0:18:04.400 where the where you can absorb some of the redundancies 0:18:04.920 --> 0:18:08.320 in the in the labor market and also um, you know, 0:18:08.359 --> 0:18:11.200 people as they roll out of jobs, they'll basically just 0:18:11.840 --> 0:18:15.840 retire or leave the country or something, and so that's 0:18:15.880 --> 0:18:18.520 clearly what they're planning. Businesses are not currently planning huge 0:18:18.520 --> 0:18:21.600 redundancy arounds because they're finding it's so hard to hire 0:18:21.680 --> 0:18:23.800 people that the last thing they want to do is 0:18:24.119 --> 0:18:27.040 get this what used to be this incredibly easy asset 0:18:27.080 --> 0:18:29.200 to get hold of, which was a worker, It seems 0:18:29.240 --> 0:18:31.280 to be now incredibly hard to get old of one. 0:18:31.280 --> 0:18:34.040 So you don't want to just just ship them out 0:18:34.200 --> 0:18:39.520 for without without very very very good reason to do that. 0:18:39.600 --> 0:18:42.959 But it's unemployment. The Bank of England's forecast for unemployment 0:18:43.040 --> 0:18:47.719 was in its disastrous scenario, was for a five increasing unemployment, 0:18:47.720 --> 0:18:52.040 which is pretty mild, which is actually exactly precisely is 0:18:52.119 --> 0:18:54.280 it is relatively modern and so that was even under 0:18:54.320 --> 0:18:58.960 its under its bleak scenario The only other thing is 0:18:59.000 --> 0:19:02.879 maybe a and I don't really know how lately or 0:19:02.920 --> 0:19:05.920 unlikely this is, but some sort of sovereign debt crisis 0:19:06.080 --> 0:19:11.240 somewhere somewhere in the world, probably not in Brent. We 0:19:11.280 --> 0:19:14.400 nearly had it, but we're actually not the most vulnerable 0:19:14.520 --> 0:19:17.479 from that point of view. Um, you know, we've our 0:19:17.520 --> 0:19:21.960 debt to GDP is high, but it's not like insanely high. 0:19:22.240 --> 0:19:24.199 I mean, I guess if there was going to be 0:19:24.240 --> 0:19:26.640 something that that would probably adopt in the Euro's own 0:19:26.680 --> 0:19:29.040 because that's the best where it's hardest for them to 0:19:29.040 --> 0:19:31.960 step in and fix it. But even then, I mean, 0:19:32.560 --> 0:19:34.560 the kind of e CV has kind of got a 0:19:34.640 --> 0:19:38.000 license to print money if it needs to and extremists 0:19:38.040 --> 0:19:40.840 that they didn't have in two thousand and eight. So 0:19:41.320 --> 0:19:43.880 I do think maybe a sovereign debt issue, But even 0:19:43.880 --> 0:19:48.520 then that's kind of an outside yeah, And there's so 0:19:48.680 --> 0:19:50.919 the UK is more alone on the kind of of 0:19:50.920 --> 0:19:55.200 strangers than you know, to quote Connie, basically, foreign investors 0:19:55.200 --> 0:19:57.840 are buying our debt um and next year we're issuing 0:19:57.880 --> 0:20:01.160 an absolute glass in this stuff. The Bank of England 0:20:01.240 --> 0:20:06.639 is selling off eight billion will be about forty of 0:20:06.880 --> 0:20:08.879 the guilts it's holding. So basically the Bank in England 0:20:08.880 --> 0:20:10.679 and the Treasury going head to head and trying to 0:20:10.760 --> 0:20:13.240 you know, compete for people to buy their guilts they're 0:20:13.240 --> 0:20:18.840 selling um and that is a huge area of vulnerability 0:20:18.880 --> 0:20:20.960 in the UK. We tested the edges of that didn't 0:20:20.960 --> 0:20:24.639 me in the summer exactly with disastrous exactly so the 0:20:25.119 --> 0:20:31.520 financial so financial stability upset in core markets like you know, 0:20:31.680 --> 0:20:36.680 government bonds um. That genuinely could be one of those 0:20:36.760 --> 0:20:41.080