Brace yourselves: hard times are about to get harder

This year has been just about the toughest in recent memory – and, in many ways, much more painful for ordinary families than the 2008 financial crisis.

Ever since the 2019 December election, world events have conspired to make this also the most difficult parliament since the last world war.

The pandemic cost us £0.5trn. It might have been managed better, but as every country on earth was making its response up as it went along, it’s hard to attach blame. All those involved were doing their best. And then, just as we looked to recover from that economic blow, a war started as dangerous as any in this world’s fragile history.

The almost immediate impact was a cost of living crisis driven by massive increases in fuel prices.  That was matched by a rise in interest rates, which has huge ramifications. People my age reminisce about double-digit mortgages, but times were very different then. We had lived with inflation for decades. It was baked in to our financial system. We knew how to play it.

What is so painful this time is that after a decade of almost free money, we went from 1% to more than 3%. Now that rates have trebled, mainly in a bid to calm global markets, we will soon see what impact this has on the housing market, particularly for young people.

Against this extraordinary background, which no government could have foreseen, the Sunak/Hunt team now has to deal with public sector unions demanding double-digit pay rises backed by massively disruptive strike action. The unions had little choice given the real cost of living crisis of so many of their members.

But the government has to stick to its current position of limiting pay increases for two reasons. At one level, it believes its stance will be as difficult for Labour as it is for the Tories. Sir Kier Starmer’s Labour needs the unions but can’t be seen to be too supportive of strikes.

The second reason is even more obvious. If the PM announced that every public sector worker in the country could have inflation-plus increases, the only lasting impact would be more inflation, which is the real enemy we need to kill off. This will be a cruel winter for many as the combination of strike action and service disruption leads to a continued recession.

All this means that next year will be tough for the property industry generally. Uncertainty leads to stasis. Investors will keep their foot on the ball as they work out whether falling prices are an opportunity or a falling knife. The UK is a great place still for long term investors and, while sterling is strengthening, it is still historically cheap but there will be worries about a future Labour government no more than two years away that has never liked developers.

Ironically, one of the most significant issues affects every sector and it arose from the pandemic. I refer of course to WFH. In the transport world, there is a growing recognition of how significant the changes to ridership already are. Less commuting, but more leisure travel in the short term, but as businesses realise the value of teamwork, we are seeing the short-term advantages for employers of needing less office space overtaken by the need to get people back together most, if not all, of the time.

There is, however, a sense that long office leases are dying. Even global banks recognise that in 10 years, they may need twice as much space – or half. While sheds have come off a little, there is an understanding that home delivery is a much bigger feature of our lives than it was pre-pandemic. All in all, not a great year ahead. But there will always be winners as well as losers in a market like this.  Hard work and persistence will, as ever, make the difference.