“The UK Cost of Credit Crisis”, Dr Peter Warburton, Economic Perspectives

David Osman of the IRF is joined by Peter Warburton, the Founder of Economic Perspectives, which he established in 1996.

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Peter Warburton discusses the way that the UK cost of living crisis is being compounded by a cost of credit crisis. Peter argues that following the global financial crisis in 2008/09, there has been a prolonged period of financial repression with low interest rates and the suppression of debt default. The impending credit crunch is not only due to rising interest rates, as there are also concerns about the mispricing of credit risks. Hence, with the economy deteriorating, debt defaults will rise.

Peter points out that fiscal policy has entered an era of bigger government with stagnating living standards. Looking further afield, he identifies those countries where double-digit inflationary pressures are particularly troubling. Those central banks that have failed to control inflation, like the US Federal Reserve, are considered to be no more than “paper tigers”.

Peter concludes by identifying the main implications of the cost of living and credit crises for the financial markets. In the near term, greater inflation, rising interest rates and higher bond yields will have an adverse impact on equity valuations.

For the longer term, Peter says there is a multi-dimensional problem confronting asset allocators, who are having to respond to such factors as monetary regime change, deglobalisation and the balkanisation of supply chains, as well as the dynamics of intergenerational wealth and income in an era of elevated inflation.