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UK Inflation Rises to 10-Month High, Protecting Your Savings, and Energy Talk · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: Welcome to the Merin Talks Money Weekly roundup, our debrief
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Speaker 2: on the biggest stories and markets and economics. I'm Merin
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Speaker 2: sum Set, Web Editor at Large for Bloomberg UK Wealth.
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Speaker 3: I'm joined Steppek, Senior reports and author of the Money
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Speaker 3: Distilled News. Later.
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Speaker 2: We are nearly there, aren't we, John, there's now there's
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Speaker 2: only like a couple of seconds before you remember that
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Speaker 2: you've got to introduce yourself. We've only meaning this through
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Speaker 2: for a year.
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Speaker 3: The wag is decreasing.
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Speaker 2: Yeah, absolutely, long and variable. On today's show, speaking of
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Speaker 2: long and variable, we're going to talk about UK inflation
0:51
Speaker 2: figures released by the Ons earlier today. Consumer prices increase
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Speaker 2: three percent from a year earlier. They are now at
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Speaker 2: their highest level in ten months. Consensus expectations around two
1:02
Speaker 2: point eight percent, so that they came in higher than expected.
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Speaker 2: It was all about food, all about FS and of
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Speaker 2: course bad bad on private schools. John, did this surprise you?
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Speaker 3: Actually? Honestly, yeah, a bit. I have to say. I
1:15
Speaker 3: didn't expect to see three percent so early in the year.
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Speaker 3: Thought we might get away until March or maybe even
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Speaker 3: April before we saw three percent again.
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Speaker 2: But you were expected you were expecting three percent at
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Speaker 2: some point this.
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Speaker 3: Year, right, Oh yeah, I mean, to be fair, so
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Speaker 3: was everyone else, including the Bank of England. It's interesting actually,
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Speaker 3: because you're right, I have seen normal people be surprised
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Speaker 3: by this, which is why I think actually, to an extent,
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Speaker 3: this is actually a problem for the Bank of England
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Speaker 3: because among financial folk there's been no secret that even
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Speaker 3: just mathematically, unless something really weird happens, something seriously deflationary,
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Speaker 3: then inflation was always going to horver between about two
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Speaker 3: and a half, three and a half, maybe getting up
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Speaker 3: to even four at some points for the whole year. Really,
2:04
Speaker 3: but I don't think that your average person in the
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Speaker 3: street realized that or understands that that's what it's going
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Speaker 3: to be, because they've also simultaneously had this sense that
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Speaker 3: now interest rates are going to just keep going back down,
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Speaker 3: and that's clearly just not the case of talk, because
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Speaker 3: you can't, you know, if it's three percent already, the
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Speaker 3: bank can't stand there and say, okay, well we're gonna
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Speaker 3: you know, we're going to get rates back down below
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Speaker 3: thirty percent by the end of the year or anything
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Speaker 3: like that. So I just I think there's still a
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Speaker 3: kind of real transition of mindset amongst you know, the
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Speaker 3: kind of the population at large to get through this year.
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Speaker 2: Yeah, so there's still a general belief among the population
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Speaker 2: that what we've seen in the last few year is
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Speaker 2: that complete normally not long now and will be back
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Speaker 2: to inflation knocking around one of the bit percent and
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Speaker 2: interest rates back down to two percent. And as we've
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Speaker 2: discussed over and over again on this podcast, we don't
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Speaker 2: see that happening. Even if inflation were to go back
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Speaker 2: down to one and half. Tube Sentencetrick that we would
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Speaker 2: still expect interest rations to normalize at a level slightly
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Speaker 2: higher than inflation like the old days.
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Speaker 3: I mean that too, because you know, if you go
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Speaker 3: back and I keep going back to this, but between
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Speaker 3: I think it's nineteen eighty one. In two thousand and eight,
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Speaker 3: the base rate was never below the CPI rate, and
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Speaker 3: it was usually about two percentage points above it. So
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Speaker 3: it wasn't until you know, two thousand and eight and
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Speaker 3: you know emergency manatory policy that you know the base
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Speaker 3: rate was below CPI for most of the time. And
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Speaker 3: again that's why I don't I don't see is going
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Speaker 3: back below that. I certainly don't think the bank would
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Speaker 3: want to go back below that. And also it's going
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Speaker 3: to look really stupid. You know, he's going to have
3:43
Speaker 3: to write letters to Rachel Reeves at least a couple
3:45
Speaker 3: of times this year. So politically, even if they are
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Speaker 3: worried about the economy, it would be extremely difficult for
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Speaker 3: them to cut rates, you know, aggressively, and a lot
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Speaker 3: of people will be complaining about them cutting them at all.
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Speaker 2: Yeah. Interesting, And we talked to earlier in the week
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Speaker 2: on our Personal Finance podcast about a cash isis and
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Speaker 2: where you've got to have a cash icer and the
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Speaker 2: higher inflation goes or that more sticky it looks, the
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Speaker 2: more important it is right to get your money into
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Speaker 2: some kind of protective rappers so that any returns you
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Speaker 2: get are not eaten up by inflation. I was just
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Speaker 2: looking at this just now. I mean, let's say you're
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Speaker 2: a higher rate tax payer and you hold cash outside
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Speaker 2: your cash icersand pounds four and a half percent, you
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Speaker 2: get your forty five quid. Once you've paid tax on that,
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Speaker 2: you're down to an effective interest rate of under three percent.
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Speaker 2: So if it's not protected, you are losing money in
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Speaker 2: real terms every year it's being it's effectively a wealth tax, right, Yeah,
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Speaker 2: any tax it doesn't account for inflation is effectively a
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Speaker 2: wealth tax. If you don't protect your savings, you're going
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Speaker 2: to lose purchasing power every month from now on what
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Speaker 2: you have been for a while, but you're going to
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Speaker 2: continue to lose purchasing power every month.
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Speaker 3: Yeah, And I mean it really has interesting when you
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Speaker 3: look at the tax TA coin savings interest in the
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Speaker 3: last couple of years has absolutely sought and it's no
5:01
Speaker 3: it's up thered with what the government res is from
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Speaker 3: inheritance tax and it went from basically zero to over
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Speaker 3: ten billion, which shows that an awful lot of people
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Speaker 3: you know, still don't have the money properly sheltered or
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Speaker 3: you know that cash savings properly sheltered. So no, I
5:17
Speaker 3: doubt it's extremely important.
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Speaker 2: Well, there's actually just been a note from aj Bell
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Speaker 2: this morning, will quote more than two million people will
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Speaker 2: face a tax bill on those savings this tax year.
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Speaker 2: Is rising interest rates and frozen tax vessels have pushed
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Speaker 2: more people into these bills. I mean, you know, there's
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Speaker 2: an awful lot of people. This came from a freedom
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Speaker 2: of information request from aj Bell. Now I wanted to
5:38
Speaker 2: move on from cash isis and how you must get
5:41
Speaker 2: on with filling them up if you haven't already, but
5:43
Speaker 2: also remember you don't want too much cash. We discussed
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Speaker 2: all this in our podcast earlier in the week. To
5:47
Speaker 2: go back and listen to that. It's really important stuff.
5:51
Speaker 2: But onto the big elephant of the room when it
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Speaker 2: comes to UK inflation and UK living standards and the
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Speaker 2: cost of living in the UK, and that is of
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Speaker 2: course energy. And I wanted to talk about that a
6:04
Speaker 2: little bit just because I was watching the ARC conference.
6:07
Speaker 2: Very interesting conference that was on the first three days
6:09
Speaker 2: of this this week in London, Alliance for Responsible Capitalism,
6:14
Speaker 2: and they had on lots of interesting speakers. It's prepare yourself.
6:17
Speaker 2: It's right wing. So you may go and look at
6:19
Speaker 2: it and find that you don't agree with everything. But
6:21
Speaker 2: you know, soldier on. You're canceled so quickly, so quickly.
6:26
Speaker 3: Pamellen, I no longer feel able to give you a platform,
6:30
Speaker 3: even though this is your podcast.
6:32
Speaker 2: I'll go quietly. It's fine, you carry on to it yourself.
6:36
Speaker 2: Just guess what I was going to say. There you go.
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Speaker 2: You need me, you need me, Okay, United States Secretary
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Speaker 2: of Energy Chris White. He yeah, I didn't actually turn
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Speaker 2: out in London, but he did down the line given
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Speaker 2: an interview, and he said some things that interesting in
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Speaker 2: the context of the energy transition. So here we go
6:56
Speaker 2: some quotes in here. NET zero twenty fifty is and
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Speaker 2: I quote, a sinister goal. It's not achievable. It brings
7:03
Speaker 2: no benefits but tremendous cost. It's made energy more expensive
7:06
Speaker 2: and less reliable. You go for zero, you lower your
7:09
Speaker 2: population's standard of living, you cut their opportunity set, and crucially,
7:14
Speaker 2: you simply export your industry. No one's going to make
7:16
Speaker 2: an energy intensive product in the UK anymore. It's just
7:19
Speaker 2: being displaced somewhere else. It's going to be made in
7:21
Speaker 2: a cold fire plant in China, loaded onto a diesel
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Speaker 2: powered ship to get down the river, onto a bigger
7:26
Speaker 2: diesel ship to get to the UK, to be unloaded
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Speaker 2: onto a dog in London. This is an energy transition.
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Speaker 2: This is lunacy. This is impoverishing your own citizens in
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Speaker 2: the delusion that it is somehow going to make the
7:37
Speaker 2: world a better place. It isn't. Yeah, I mean he's
7:40
Speaker 2: saying it very firmly. And so when you look at
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Speaker 2: UK inflation figures, and when you look at our d
7:45
Speaker 2: and rutalization, and you look at a falling productivity and
7:49
Speaker 2: falling growth, at falling growth payer head right, but all
7:52
Speaker 2: these things you can't stop but think that it's time
7:57
Speaker 2: to rethink all this. And I know the government is
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Speaker 2: talking about looking much more seriously at nuclear, a lot
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Speaker 2: more money and focus into that, and that is also
8:05
Speaker 2: something that right suggests, but it kind of needs to
8:09
Speaker 2: move a little faster, and he says at the end
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Speaker 2: of his talk, he says this phrase. He says, energy
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Speaker 2: realism is humanism. Let's focus on humans again and their lives.
8:17
Speaker 2: And he also talks about energy enabling security. You cannot
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Speaker 2: have security without energy security. Am I still canceled? Or
8:24
Speaker 2: am even more canceled? Now?
8:26
Speaker 3: I mean even more canceled?
8:27
Speaker 2: But I think I still think double canceled, triple canceled.
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Speaker 3: Yes, So obviously Ed mellerbind is the sort of art
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Speaker 3: kind of proponent in that zero in this country just now.
8:39
Speaker 3: But the way he tries to frame it is in
8:41
Speaker 3: exactly the same terms. Because he talks about how we
8:45
Speaker 3: are overly exposed to the global markets, which which actually
8:49
Speaker 3: we are, and he talks about how what we need
8:52
Speaker 3: to have to secure energy supply is home growing safe
8:57
Speaker 3: energy sources, and it's just what he's talking about is
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Speaker 3: something completely different and also the cause of all of this,
9:06
Speaker 3: which is, you know, reliance on intermedtent fuel. Are the
9:10
Speaker 3: locked into kind of go ahead with The only renewable
9:14
Speaker 3: that actually isn't intermedtent, of course, is nuclear and a
9:18
Speaker 3: complete binding of any kind of explanation the fossil fuels,
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Speaker 3: even ones that might help is mine, needs to transition
9:26
Speaker 3: and be better than you know, coal, et cetera.
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Speaker 2: Yeah, gas for example, being you know the classic here.
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Speaker 2: Much more focus on gas would be a much better idea. Maybe. No,
9:36
Speaker 2: I haven't checked all that this to write numbers, by
9:38
Speaker 2: the way, so give me some leeway. Here he talks
9:41
Speaker 2: about Germany and the extraordinary amount of money that they
9:44
Speaker 2: have spent trying to decarbonize, and you know, they really
9:48
Speaker 2: have worked very hard at this, and they've managed, with
9:51
Speaker 2: all the money they've spent, to reduce their use of
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Speaker 2: hydrocarbons from eighty percent of their energy needs to seventy
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Speaker 2: four percent of their any energy needs, and the cost
9:58
Speaker 2: of their electricity is doubled.
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Speaker 3: And I would love to know how much that's just
10:02
Speaker 3: purely down the industrialization over the time as well, because
10:07
Speaker 3: at one point they had to up there used to
10:08
Speaker 3: call because of the amount of wind in the system
10:11
Speaker 3: as well. Same to remember, it's all just part of
10:14
Speaker 3: the same sort of collective loss of mind that happened
10:20
Speaker 3: over the last ten years or something.
10:22
Speaker 2: Oh you canceled, but a people were paying.
10:29
Speaker 3: More attention to a Swedish teenager. The JD. Van's speech
10:35
Speaker 3: the other day obviously ruffled a lot of feathers. But
10:39
Speaker 3: he was standing up there and telling them off, and
10:42
Speaker 3: they all get annoyed about it, and about you know,
10:44
Speaker 3: seven or eight years ago a wee lastly from speeding
10:47
Speaker 3: stood up and told them all off and they all
10:48
Speaker 3: clapped like idiots. So I don't really it's very it's
10:55
Speaker 3: very hard to wrap your head around how we got
10:57
Speaker 3: here in the first place.
10:58
Speaker 2: And then we have the matter of the budget, and
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Speaker 2: obviously the Van speech is brought into sharp definition the
11:04
Speaker 2: thing that you've been writing about for ages and so
11:06
Speaker 2: have I, which is that defense spending has got to
11:09
Speaker 2: go up and you should be invested in defense companies
11:12
Speaker 2: because is defense is social need. We've been discussing this
11:15
Speaker 2: for some years now, haven't we. If you are in
11:17
Speaker 2: ESG investors, should you be invested in defense? Because there
11:20
Speaker 2: is no S without security, no S for social without security.
11:24
Speaker 2: If you see it, I mean, so should you be
11:26
Speaker 2: in that? And then they'll be looking at our our
11:27
Speaker 2: defense budget and we want to get it from where
11:30
Speaker 2: are we now about two point three percent less than that? Yeah, yea,
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Speaker 2: and we want to get it up to three percent.
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Speaker 2: It's a huge leap. Defense is something like fifty four
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Speaker 2: billion pounds in the UK.
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Speaker 3: Yeah, no, it's a massive leap, a massive leap.
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Speaker 2: And then the Times today for enthusiastic reader at the
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Speaker 2: time today, note that rather our defense is fifty three
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Speaker 2: to fifty four billion, we spend eighty three billion on
11:53
Speaker 2: sickness benefits and that's going to go up to one
11:56
Speaker 2: hundred billion in the next five years. If we could
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Speaker 2: bring that back down into pre pandemic levels, we'd free
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Speaker 2: up twenty two billion that we can bend on defense,
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Speaker 2: which will ta us pretty much just three percent.
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Speaker 3: And I mean nice quality change. I mean to be
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Speaker 3: feel I think the government is again at least wanting
12:14
Speaker 3: to try to address that, because I mean, yeah, the
12:17
Speaker 3: fact that's been one thing. If you know, you can
12:19
Speaker 3: go on agent demographics blah blah blah, but this, this
12:22
Speaker 3: is a pandemic thing, this has Hartmon sence.
12:25
Speaker 2: Then well, there has been more data out on the
12:29
Speaker 2: percentage of households that are net recipients of benefits, less welfare,
12:34
Speaker 2: less state services including NHS, use and schools, etcetera. So
12:37
Speaker 2: you can have lots of argument about what you should
12:39
Speaker 2: include or you shouldn't include, but at the moment, over
12:41
Speaker 2: fifty percent of houses are net recipients, which is up
12:44
Speaker 2: from you know, somewhere in the mid thirties and the
12:46
Speaker 2: nineteen seventies, So you know, that's that's a very big change.
12:50
Speaker 2: And when you drill down into the numbers, a lot
12:52
Speaker 2: of that is about an aging society and there's nothing
12:54
Speaker 2: we can do about our aging society, and that it
12:57
Speaker 2: doesn't matter. You can bring in hordes of new people
12:59
Speaker 2: if you like that, but they going to get all
13:00
Speaker 2: to it, doesn't the problem. But inside those numbers, it's
13:03
Speaker 2: also the case an awful lot more working households are
13:07
Speaker 2: welfare and life benefit dependent than have been have been
13:10
Speaker 2: in the past, and that's a change that I think
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Speaker 2: the government if they're not focused on certainly should be
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Speaker 2: focused on. I think we're Gonell's topic. Weren't we only
13:17
Speaker 2: going to talk about inflation today?
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Speaker 3: I think, oh, this all that this feeds in there,
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Speaker 3: doesn't it because it's more, it doesn't spend it's going
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Speaker 3: to cost us more. But I say, the other really
13:25
Speaker 3: interesting thing about health and defense, and I think that
13:28
Speaker 3: this is both repeating, but it really is very recent
13:32
Speaker 3: that the defense spending is a proportion of GDP has
13:36
Speaker 3: surpassed health spending is a proportion of GDP. So I'm
13:39
Speaker 3: just looking at the ifs I think tank there there
13:42
Speaker 3: we kind of primer on this, and it actually it
13:46
Speaker 3: wasn't until the late eighties that they crossed one another.
13:49
Speaker 3: So before that we spent more on defense and less
13:52
Speaker 3: on health. And obviously that's partly but that's a big
13:56
Speaker 3: party about the end of the Cold War. But around
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Speaker 3: about then we will spend about four percent on each
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Speaker 3: and since then defense has dropped he around about two
14:05
Speaker 3: to two point two percent, and health is kind of
14:07
Speaker 3: rocketed to about eight and a half percent. That's twenty
14:11
Speaker 3: twenty two to twenty three.
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Speaker 2: Is that health as in NHS health or health as
14:15
Speaker 2: in disability and sickness benefits.
14:17
Speaker 3: That is, health is in NHS Health. That's that's I'm
14:19
Speaker 3: pretty sure that's just the NHS Health so rather than
14:23
Speaker 3: you know, social benefits, it says, so, yeah, it's much
14:25
Speaker 3: worse than that. But I guess the point is we
14:27
Speaker 3: used to spend an awful lot more on defense, and
14:30
Speaker 3: it really is only since the Cold War ended that
14:33
Speaker 3: we've cut it right back. So we can't do this,
14:37
Speaker 3: you know, we can go back to you know, this
14:39
Speaker 3: was all in easily within our lifetimes, and I'm sure
14:41
Speaker 3: the lifetimes is every listener to this podcast. It's just
14:44
Speaker 3: that it's just that it means that we might have
14:47
Speaker 3: to well, I might have to be prioritize guns over butter, and.
14:50
Speaker 2: We might have to really confront the fact that we've
14:53
Speaker 2: got nine million economically inactive adults in the UK.
14:56
Speaker 3: Yeah.
14:57
Speaker 2: Yeah, that's a lot of work. Yeah, why that is. Yeah.
15:00
Speaker 2: But now that this whole idea of defense spending having
15:03
Speaker 2: to rise is out in the open, it's moved beyond
15:05
Speaker 2: this podcast into general discussion. That provides the perfect cover,
15:09
Speaker 2: doesn't it. John for Rachel Reeve's put up taxes again,
15:12
Speaker 2: I didn't know. Yes, there was twenty two billion pound
15:15
Speaker 2: black hole and now, oh my god, defense you number two? Right?
15:21
Speaker 3: Yeah, yeah, I mean it's pretty wordy in but yes,
15:26
Speaker 3: if she needs an excuse, and she probably does need
15:28
Speaker 3: an excuse whenever, they will be our tun and says
15:31
Speaker 3: you know you can't do this, you can't do that. This,
15:34
Speaker 3: this is what she's got to come out as we
15:36
Speaker 3: change her first goal rules.
15:38
Speaker 2: There you go, listeners. We have one message for you
15:42
Speaker 2: this week. Use those ISO.
15:44
Speaker 3: Wrappers by your annual allowances.
15:49
Speaker 2: Yes, yes, use every allowance you have anyway. I should
15:54
Speaker 2: like to end this podcast on an upbeat note, John,
15:57
Speaker 2: say something jolly please, why we see something? Yeah, I
16:03
Speaker 2: know it's tough for class regions, but give it a go.
16:06
Speaker 3: Give it reality to the world. Nature is healing. That's
16:09
Speaker 3: as good.
16:10
Speaker 2: Okay, thanks for listening to this week's Merrin Talks Money Debrief.
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