Hey guys, it's Sasha Andrew Bailey The Governor of the Bank of England just said that he has basically fixed inflation and there is now no real need for more rate increases. So there was a period where it seemed to me it was clear that rates needed to to rise going forwards and the question for us was how much and and over what time frame. But we're not I think in that place anymore and that's why we shifted uh language to being much more evidence and data driven. according to Andrew Bailey Inflation in the UK is now over because you see he is now making data-driven decisions.

The big problem is that the data says the exact opposite of what Andrew Bailey and the other clouds on his committee said in their meeting in Parliament. The Bank of England is now patting itself on the back, congratulating themselves popping open the champagne, saying that they have done a great job at tackling inflation. Many of the indicators are now moving as we would expect them to move and are signaling that the Fallen inflation will. It will continue and as I've said a number of times, I think will be quite marked for the by the end of this year.

Further, further further, quite marked by the end of this year. So the analysis that these guys have done is roughly this. see this chart of UK inflation. If you do analysis on it, you can draw this line and you can clearly see that this line is going down.

So inflation is done and is going to Zero by Christmas. The problem is that inflation is more complex than extrapolating what happened in the last few months into the future because the UK is now sitting in a wage price spiral that I have been warning about on my channel for over a year now. Which is kind of funny because this random guy on YouTube just a random guy saw it coming. I was sat right here making videos explaining the analysis on why it is coming and why it was progressively getting worse.

But the Bank of England's Monetary Policy committee was surprised to see it happen. The wage, Wage wage marketing of course is one thing that has surprised us the other way in recent months. So we had a very big upside surprise in Pay. Between the May forecast and the June meeting, we had an upside surprise in service price inflation.

Now you can see the blue lines on this chart which are showing wages in the UK that are now going up at a record rate and accelerating after two years of high inflation, Mortgages and rent prices are increasing. The energy bills have been going up by a few hundred percent. People are desperate. Andrew Bailey Seems to think that people asking for wage increases are to blame for inflation.

He seems to think that that is the cause. unfortunately. No. Andrew No, they are not there.

This symptom and you know what that they are a symptom of. Well, it's a symptom of people just trying to make ends meet, trying to put food on the table, feed their kids, and pay their bills. The problem with people like Andrew Bailey is that he is so far removed from how normal people live that he actually has no idea what inflation actually feels like. How it actually affects people's lives.

this coming winter, he he will not have to choose between heating his house and eating dinner. The reason inflation is high is not because people are asking for pay increases. The reason for inflation being high is because the bank of England up and failed at their job because they are grossly incompetent and have no idea what they are doing. And now that the waste price spiral is here, it is only getting worse.

Last year pensions in the UK went up by 10.1 percent. This year they will go up again under the conservative government's triple Lock promise Under This Promise Pensions go up by the rate of inflation or by the rate at which wages are growing or by 2.5 percent, Whichever is higher. And in the latest data to June wages have gone up by 8.2 percent. Now next week we will get an update on this number and whatever that number is, that's how much the pensions are going to go up.

And the problem with the triple lock is that pensions grow faster than wages over time. The reason that this is a problem is that the people who earn wages are the people that pay those pensions through tax. You see the master. I Know it's very complicated, especially if you're a governor of Bank of England but that is actually how it works.

and if the people who pay the taxes from their wages are not earning as much as the pensioners and the discrepancy increases, you get into a bit of a boo-boo and you can see in this chart from the financial Times how the state pension the blue line at the top has been growing way faster than inflation or wages, and you might naturally wonder why. Is it that the Conservative government introduced a triple lock system that is economically unsound and designed by people who don't understand anything about economics? Well, I Mean it sounds nice to keep increasing pensions. You know, old people, they've got to live. and I know that they have things that they have to do.

They have bills to pay, but pensioners are already the biggest part of the UK welfare budget and that proportion is growing exceptionally fast. Great Britain Currently spends 136 billion pounds on pension and benefits. That's about 11.5 percent of the total public spending, and last year that number was 10.4 percent. So it's gone up from 10.4 to 11.5 in just a year.

and next year it's gonna go up with something roughly the same and it's going to go up again after we get the data next week. and I get it. Pensioners are also struggling to pay their bills their people too. But this coming increase is only going to add to the wage price spiral.

I Guess the government could maybe change policies so that they don't bankrupt the country by increasing pensions more than they increase the pay of nurses and doctors more than they increase the wages of firefighters or of teachers. But hey, over the last 13 years pensions increased by 20 more than wages and that's going to keep on going. The Conservatives came to power in 2010 and immediately announced the pension triple Log in the same year. And here is how the UK happened to vote at the last election when conservatives also got elected.

It just so happened happens by complete coincidence that the majority of Tory voters are pensioners are about to become pensioners and the young people who pay the tax that pays the pensions don't seem to like the Conservatives very much. Interesting that, but going back to inflation, remember how the Bank of England was surprised by the increase in the cost of services? Well, this is just the start of their problems. In a few months, they're going to be really surprised by a much much bigger problem that we absolutely cannot see right now. So let me just tell you a bit about it because wages are now Rising faster than the rates of inflation, but just because the inflation of some goods and commodities has come down does not mean as Andrew Bailey said and I'm eating in Parliament that wages will follow.

In fact, it is the opposite. Yesterday news broke that UK house prices fell at the fastest Pace since 2009. Again, I do not take much pleasure in it. But unfortunately, this is yet another topic that I have been covering for over a year saying that this is going to happen.

But the big problem is that even though the house prices are falling people's mortgages, the monthly mortgage payments are doubling in size when you come off your fixed term deal. Because the interest rates have gone up from just above zero to 5.25 in the last year and a half and we'll probably keep going. Even if your house price drops by 10 or 20 or whatever, your monthly mortgage payment is still going to be way more expensive. Take a typical mortgage.

It doesn't really matter exactly what your numbers are. Call it 200 000 pounds over 25 years. If you took that mortgage out two or three years ago, you might be paying an interest of something like 1.5 percent and your monthly payment is 800 pounds. But let's say house prices Collapse by uh, 20.

Just as an example, your house is now worth 160 000 pounds. But because interest rates have gone up your new interest rate when you come off the fixed term and either roll onto the rolling rate or fixed to a new one is going to be let's say, one and a half percent above the bank of England base rate. So yeah, even though your house is now worth 40 1000 pounds less when your fixed term ends this winter or next year, your payment will now be 1131 pounds. so you would be paying 40 more.

But there is the little problem of negative equity because you see when you go and see your house price collapse, your mortgage doesn't just happen to drop because your mortgage stays exactly the same, exactly the same place where it was. You know you will have paid off a little bit from the last time you took it to now, so the bank valuation will not, in fact drop by 20. It's still going to be at that 200 000 pounds or whatever it is Mark and your monthly payment is going to go up to 1414 pounds instead 77 more than it was on that low rate. But it takes time for people to come off their mortgage rates.

It takes time for that to filter through to rental prices and you can see that on this chart. The blue lines at the top are the two different inflation metrics the one with and without housing and this black line at the bottom is ooh, which is the owner, occupier housing costs And according to the Bank of England's data, this bid is currently growing at less than five percent year on year. Now, roughly one third of households in the UK have a mortgage. Almost all mortgages in the UK are on a short-term fixed rate of between two and five years and another one-third rent.

So this data that the Bank of England is making their decisions on hasn't even started to show what's going to happen to the cost of paying a mortgage to the cost of paying your rent. It's only just beginning to. You can see it's starting to climb just barely. But what happens over the next few months when this line begins exploding.

We already know that it's going to explode because we already know that the interest rates have gone up. We already know what the impact on mortgage payments is going to be. When people start really on mass rolling off their fixed terms, it's just a matter of time. It's a ticking Time Bomb We already know that it's going to happen at the same time.

Service Inflation in the UK is not going down because of the inflation wage spiral because Services have a much higher proportion of their cost base being formed of wages and CPI is the inflation data with housing cost. Services. Inflation actually went up in July from 6.3 to 6.5 So while the Bank of England Governor is telling you that inflation is falling, it's all going down. It's all going in the right direction.

It isn't quiet how it is in the data and we have to wait two weeks to see the same days that come through for August. But all the indicators are that it's going to look pretty ugly. So the bank of England looks at the overall data and says that inflation is on the way down. It's all done.

It doesn't matter, the line is going down was real data though says that services and the mortgage crisis that we are witnessing are going to revert this downward. Trend and me when that happens. Everybody is going to be so extremely surprised because as per usual, absolutely nobody could have seen it coming.