The ESPC Property Show: Economics Revisited

Paul: Hi, it's Paul. And as ever, it's

Megan: Megan!

Paul: So today we're going to have a chat with Debbie Hair, who's an Investment Director at Evelyn Partners. We're going to talk about the economy, inflation, and interest rates.

Megan: Yeah, I think we're going to call this episode "Economics Revisited." Following on from our first episode with Debbie in season one. We talked about inflation, and now we've had interest rates paused.

Paul: Yeah, we've already had the debate, but we're going to dive into it. Debbie's fixed the economy.

Megan: We're a year on from the infamous Truss budget. So we wanted to chat about the effects and the lag in the economy.

Paul: Yeah, it's a bit of a blunt tool, and we've had some major shocks.

Debbie: We've come quite a long way since October. The height was above 11%, and now it's down to 6.7%.

Paul: Yeah, wage inflation remains a concern.

Debbie: The labor force reduction is apparent in the UK and the US.

Paul: Mortgages are taking longer to roll off than expected.

Debbie: It's ticking slowly. There might be another interest rate hike, but inflation is trending in the right direction.

Paul: The Monetary Policy Committee will review rates in November.

Debbie: They should take a pause for breath and see how it impacts.

Paul: The economy is still fragile.

Debbie: Once the focus moves away from inflation, we need to focus on growth.

Paul: Who's in the best shape for growth in the next couple of years?

Debbie: The US looks the most promising. Europe has struggled due to divergence across its economies.

Paul: What about the UK?

Debbie: The UK has labor market issues and was impacted by the European energy crisis.

Paul: Brexit might have had an impact as well.

Debbie: It's safe to say whoever comes into power will avoid a scenario like that.

Paul: Are green policies still a major consideration for investors?

Debbie: ESG is definitely a major consideration, and it's still important.

Paul: It's essential to maintain confidence in investments.

Debbie: Sustainable funds had net outflows last year, but it was driven by the energy focus.

Paul: Do you think that's only short-term?

Debbie: The reversal was understandable given the backdrop.

Paul: The US is ahead of Europe and the UK in terms of growth.

Debbie: The US leads the way into and out of recessions.

Paul: So it's going to be the US, then the UK, then Europe.

Debbie: I think it's safe to say whoever comes into power is going to avoid a scenario like that.

Paul: Are green policies still a major consideration when people are investing?

Debbie: Yes, ESG is essential, and it's still on people's lists.

Paul: It's crucial to maintain confidence in investments.

Debbie: Sustainable funds had net outflows last year, but it was driven by the energy focus.

Paul: Do you think that's only short-term?

Debbie: The reversal was understandable given the backdrop.

Paul: The US is ahead of Europe and the UK in terms of growth.

Debbie: The US leads the way into and out of recessions.

Paul: So it's going to be the US, then the UK, then Europe.

Debbie: I think it's safe to say whoever comes into power will avoid a scenario like that.

Paul: Are green policies still a major consideration when people are investing?

Debbie: Yes, ESG is essential, and it's still on people's lists.

Paul: It's crucial to maintain confidence in investments.

Debbie: Sustainable funds had net outflows last year, but it was driven by the energy focus.

Paul: Do you think that's only short-term?

Debbie: The reversal was understandable given the backdrop.

Paul: The US is ahead of Europe and the UK in terms of growth.

Debbie: The US leads the way into and out of recessions.

Paul: So it's going to be the US, then the UK, then Europe.

Paul: The trend is still upwards, isn’t it?

Debbie: I think it's only short term. Climate change is obviously the biggest challenge we face as a society, whether it's a political football or, you know, regardless, this is a genuine challenge faced across the developed markets, emerging markets. And we as a company completely believe in the consideration of these factors. So environmental, social and governance factors when we're looking at companies and and it makes sense, you know, you want to avoid poor outcomes and you want a company that's, you know, has longevity.

Debbie: We are we are long term investors. So we're looking at the next five, ten, 20 years, and you've got to be on the right side of this to be able to survive and to be successful. So we we, you know, is a very much a part of our day to day research when it comes to looking at companies.

Debbie: And I think realistically, you know, to come back to the Inflation Reduction Act in the US, and we know we've seen a kind of equivalent green act in Europe and we know about, you know, UK legislation. So we're very much still seeing huge amounts of money into this area. Yeah, things like just alternative energy, carbon capture, storage, you know, more efficient energy production.

Paul: And it's going one way. We're transitioning, isn't it? And it's, it's, it's a painful transition, but we will ultimately get there. Well, yes, it's pretty clear.

Debbie: Yeah, well, I hope so. I think technology might help us as well.

Paul: I agree.

Paul: Let's not talk about hydrogen cars now though.

Debbie: I think I would say absolutely. It's really important. That's still a huge consideration. Okay.

Paul: That's interesting. Can I just ask you one more? Sorry Megan, I’m hogging the mic.

Megan: Yeah. No, no.

Paul: Have we see the end of QE and who decides that? Is that Bank of England policy?

Debbie: Well, yeah. So it's it's monetary policy. So yes, it's the Bank of England or any other central bank buying up government bonds or to, to some extent they do do corporate bonds as well when times are really tough. So I suppose it's just a way of stabilizing kind of economic condition. So it can have quite extreme cases. Yeah, I think the in theory, the requirement for it will be less so because we're hopefully going to take on higher growth, higher interest environment.

Debbie: Yeah, so requirement less so, but I don't see why there shouldn't be, you know, a scenario in the future where quantitative easing comes back. And I know it's controversial. I know some people think it obviously is contributed to to this situation where an inflationary rise but equally is it's you know this economic crisis.

Paul: So you haven't got many options, have you?

Debbie: No. But it's quite the opposite at the moment. We've always had the reversal of quantitative easing right now, trying to kind of take that liquidity out.

Paul: Yes. And so as we check it out, as I say, Bank of England's being pretty consistent in this, that they want to get back to the promised land, the 2% which which seems awfully ambitious if I'm you know, if I took a step back and thought about, you know, maybe that is.

Debbie: This arbitrary figure.

Paul: PIck a number!

Debbie: It came from New Zealand, apparently, so and I think realistically, you've kind of got to stick with that target, it’s a credibility issue, isn't it? You can't just move that target around depending on, you know, the environment, but.

Paul: You can move what's in the basket.

Debbie: Yeah you can!

Debbie: Your meatless sausage, for example. Yes. Yeah, you could. But I think the central banks will just have to live with slightly higher inflation for, for the foreseeable life. Realistically, that's what we think will happen. And actually looking back, since the Bank of England became independent, which was late nineties, I think it was 90, and they do have a reasonably good track record.

Paul: It wasn't as difficult.

Debbie: And so I think because of the structural changes that I mentioned before, it kind of post-pandemic and I think realistically they just have to get comfortable with it with that slightly higher level. Yeah, but there's also factors at play and you could talk about things like artificial intelligence or demographics. All of these things could have an impact that we've never seen before, you know, So it's quite hard to know.

Paul: We are in like another industrial revolution, which is of course, you know, clearly not industrial. Yeah. You know, it could be on that scale, couldn’t it really.

Debbie: It could be. It could be. And you just don't know until until the kind of the revolution starts.

Paul: Yeah. So 2% for inflation. So we know that that potentially might mean that we have interest rates, you know, not the levels that we've seen, you know, through about 2019, 2020. We think about first-time buyers here.

Megan: Yeah. So we're big champions of first-time buyers. We always shoehorn them into every episode. I think it's just, we just think they're a really important part of the property market. Obviously, you know, you need new people coming in all the time. But I, I think the key thing that we want to ask you was something that a lot of first-time buyers really struggle with is the savings aspect.

Megan: Obviously, you have to have quite a lot of savings to get on the property market just now. I don't know if you have any advice on what way people can make their money work best in the lead up to purchasing a house or making a big purchase

Debbie: The one good factor that's come out of this scenario is interest rates are high for savers. So shopping around.

Paul: I think about that right now where you can secure, you know, for a one year term deposit, you can get you can get quite a bit rate on that but shop around as someone who had to shop around for the refinancing of their mortgage. It definitely pays off. You know, have a have a look around and see what people are offering and and staying in cash when you're getting you know, four and a half or 5% on your it's Yeah, that's good That's really good.

Debbie: And and especially as inflation's trending downwards a year, you know hopefully we'll be in kind of real earnings territory soon and and I would say for those that are maybe got a little bit longer there is this kind of short term is almost a window of opportunity in the guilds market we've seen yields go up and as as you know, inflation rate.

Debbie: Yeah. You know £100 when it when it redeems. So it's a nice secure way of kind of getting a bit of capital uplift and in some cases you get a bit of interest as well. So a coupon on that gilt as well. Yeah. So I mean depending on is an attractive proposition right now. It's now been in the past, it's not been in my entire investment career but it is at the moment so you could look to that, but that's a bit trickier.

Debbie: You need a platform to be able to buy them on and you know it's manageable. So if you've there's that and I just say equity risk is not a risky take on for the short term. So don't take any huge risk, don't gamble with a deposit.

Paul: What about gold?

Debbie: Yes, quite a tricky thing. And there's still volatility in gold and there's no income and it's really a safe haven asset. So it has nice because of the risk off environment and still so can be volatile in terms of price. And it's a tricky thing. It's generally ETCs we call them so exchange traded commodities. So as a vector you can't just go and buy a gold bar and what you could do as much as you pretend you're safe at home, you could.

Debbie: I'm not quite sure in our short term or short to medium term basis, I would take, I don’t want to say punt, but on the price of gold.

Debbie: It is very interesting, we are very lucky. We have strategists who hear this is they will kind of digest that information and and pick out the salient points and and it is interesting and the tone often and there's just a few and very significant remarks that can go unnoticed into the kind of practices. So yeah, lucky we've got people that work in for us for information.

Paul: Maybe I'll ask them to help me out. But it was it was only it was just very close us. I wasn't. It was one vote in it.

Debbie: So. Yep.

Paul: For the pause. So again we'll see.

Debbie: You read the notes

Debbie: I read the summary.

Paul: Yeah. Well listen that's, that's great Debbie, I think, you know, clearly you've, you've given us a really good picture. What we might do in the future is we might just it popped into my head when you were talking, you know, that's sort of what I want. Sort of maybe we should do something on just, you know, like, well a gilts is what inflation is, you know, it's like everybody knows these things.