Cost of Living – we can relate


Ofgem Price Cap Change Comment
Q1 2019 £1,136 Initial price cap
Q2/Q3 2019 £1,254 +£118
Q4 2019/ Q1 2020 £1,179 -£75 Warm winter causes lower prices
Q2/ Q3 2020 £1,162 -£17 Significant challenger bankruptcies begin
Q4/ Q1 2021 £,1042 -£120 Colorado Energy, Pure Planet, GOTO Energy bankrupt
Q2/Q3 2021 £1,138 +£96 Re-opening triggers higher demand
Q4/ Q1 2022 £1,277 +£139 Bulb bankruptcy / Russia – Ukraine war pushes up BTU prices
Q2/ Q3 2022 £1,971 +694 Ofgem adjustment to higher market prices
Q4 2022 £2,800 +829 Ofgem estimate based on current prices



Energy savings can be generated by reducing consumption, not having TVs on standby, turning off lights, hanging damp clothes out to dry, not using dryers. These simplistic measures can help, alongside the UK government’s cash handback package.

Broadly, c. 8m vulnerable households will receive £1,200 of support including a one off £650 cost of living payment, universal support has increased to £400 and the repayment requirement has been scrapped. All households will get a £400 discount. This £15bn support measure is by nature, inflationary as it amounts to a direct cash injection, a C-19 era ‘helicopter money’ payment. It will increase inflation expectations.

As everyone realizes, the global zero interest rate policy (Z.I.R.P. 2009-2022 RIP) is over. Office chat has focused on the remaining mortgage fix, how long before the fix ends and payments rise? 74% of mortgages are on fixed rate repayment terms, 26% on variable rate. Of these, c. 55% are 2 year fixes and 45% are 5 year fixes, so 53% of mortgages will see rates change in the next 12 months. This should slow mortgage demand and increase mortgage arrears.


£138k average mortgage 2021 2022 2023 2024
2YR Mort. Fix 2.28% (average) 3% 4% 5%
Monthly Cost £1287 £1325 £1397 £1463

Savings run-down

Cost of Living ‘winners & losers’

Countries, sectors have bifurcated (diverged) in 2022 – it is worth looking at the main movers in the last 6 months.


Both UK & Norway are leading global stock indices owing to their crude oil linkage. Amongst other global indices, it is no surprise that the Russia/ Ukraine war has mostly impacted neighbouring countries who are facing multiple issues ranging from refugees, the adequacy or otherwise of its defence industries, and helping to fund Ukraine.

We continue to see US technology stocks are representing ‘yesterday’s bubble’ a constituency reliant on very low interest rates, boardroom hype and faith in sky high valuations. There are both similarities and distinctions with the 2001 internet bubble.

Sector Winners/ Losers (12 months)

UK Oil, Gas, Coal +67.2%

UK Pharma & Biotech +26.8%

UK Aerospace & Defence +23.4%

UK Industrial Metals & Mining +0.22%

UK Tobacco -2.86%

UK 300 technology -4.06%

UK Banks – 4.31%

UK Life Assurance -11.68%

UK Industrial Transport -16.96%

UK Retailers -18.87%

UK Travel & Leisure -28.31%


The ‘winner’ sector movements tend to confirm that investor preferences have a strong ‘macro’ feel – a bias towards companies with inflation proof businesses, strong pricing, or experiencing higher demand factors.

Both US petrol prices ($4.62/ US gallon) and UK petrol (173p/ lt) have increased to record levels and will continue climbing if/ when Russian oil is sanctioned.

The EU and in particular Germany is changing energy policy to address the problem of EU foreign policy compromised by an energy industry reliant on a malevolent and aggressive foreign power. As the spigots turn, there is likely to be volatility as alternative sources are found and possibly struggle to entirely replace lost supplies.

The ‘loser’ sector have a more discretionary feel where demand factors can be exposed to lower disposable income. The decline of online streaming/ cinema demand is a good example



UK and global consumers are in the same boat and facing an expense problem in 2022 – 2023. Consumer discretionary businesses are likely to be pressured. We see existing trends as remaining intact for H2 2022.

A related issue is whether today’s inflation problem, the war, the global response to the war, leads to a GDP slowdown that stabilizes inflation in 2023. This could result in a ‘soft landing’ where the economy slows down enough to put out inflation without causing a recession. Alternatively, the world continues with ‘stagflation’, i.e. weak GDP growth and rising inflation.

My recollections of the 1980s and 1990s are varied. Mortgage rates were far higher, but debt levels were far lower. In those days, people focused on the right hand side of the balance sheet, debt and liability management – a skill that not everyone possesses these days. A tangible difference between then and now is that central banks are able to live with negative real interest rates (i.e. having inflation exceed nominal interest rates). This was not the case in the 1980s-1990s. Given this reality consumers’ ‘real’ inflation adjusted debt is allowed to shrink naturally. So challenging times are ahead, but also a period when sound financial advice makes all the difference.


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