Its goodbye to the nice decade as inflation picks up in 2008 and the Bank of England’s expectations for inflation have change substantially since the start of 2008. This reflects the fact that oil and other energy prices have kept rising and that food prices have risen strongly. Just to pick a few items, the price of milk, cheese and eggs is up by 15.7% over the year, bread and cereals up by 8.5% and fruit up by 7.4%. The overall food index is up by 7.2%.
The rise in energy prices, which are up by 13.6% on the year is another important component relevant to householders etc. The BOE clearly believes the nice decade is over as we are seeing a pick up in inflation and a slowing in economic growth. The past decade has been marked by very low inflation and stable interest rates- a marked contrast with the previous 2 decades. But for the time being at least , nice and easy is not going to be the path for the UK economy.
Pressure on food prices in particular is growing, with the world population growing by 80 million a year and meat consumption on the rise. Limited resources mean supply is struggling to keep pace with demand while global warming is likely to create additional pressure on supply in years to come. We have just seen the end of a bear market in agriculture prices and that the real high of soft commodities dates back to the early 1970s. Soft commodity prices are down at 75 per cent from the real peak in 1973-74. Many experts feel that we are in a 25 year cycle that kicked off 12 to 18 months ago and will surpass all previous highs seen in the market.
Investors in commodities have generally made 40 per cent in the last 12 months so there is no shortage of investment in this area- which again pushes up prices- but how does one manage to cope with the above scenario bearing in mind for example that the average house price is still around 6 times greater than the average maturing individual pension fund. The number of people reaching retirement in the UK is increasing and will continue to do so for several years which means that people will be using equity release to boost retirement income. It is likely that house prices will drop by up to 20% in 2008 but the so called nice decade as explained above has provided people with lots of equity in their properties so they have choices.
An example would be that one could sell your house and retire in another country. Bulgaria as an example can offer for 100k (GBP) net a new 4 bed individually designed detached house on a quarter acre plot- in the countryside etc- which means that the average Brit. for example could retire and buy their own house with an investment pot of at least 200k to live off throughout their retirement. This investment should provide an income of at least £1000 (GBP) per month-after tax .
Most people in the UK will never be able to live in a house as mentioned above because that house would cost at least 400-600k to purchase and how would they provide income to pay for expensive and rising monthly bills etc.
Remember also that Bulgaria is only a 3.5 hours flight and you could live 30 mins from the airport, 15 mins from shopping centres, 30 mins from the beach and live in a traffic free zone with fishing, hunting, horse riding etc- all on your doorstep- and all for 100k (GBP) net.
Don’t forget that the cost of living is much cheaper in Bulgaria than the UK and you and your neighbours can benefit for example from growing your own organic vegetables as you would have the space to do this and you can benefit from cross trading your vegetables etc for meat in your local community. The point here again is cost- and benefiting with an increased standard of living.