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Surviving Stagflation Webinar - May 2022

The Bank of England is warning that UK inflation could move into double digits this year with growth slowing sharply.

How can investors best protect market gains of recent years and maintain purchasing power in the face of tighter monetary policy, rising recession risks and surging inflation?

RLAM’s Senior Economist, Melanie Baker, Head of Fixed Income, Jonathan Platt, and Head of Multi Asset, Trevor Greetham, discuss.

Duration: 36 minutes
Recorded: 17 May 2022

Adam Vaites: 

Hello, and welcome to this latest Webinar from Royal London Asset Management. Thank you all for your time today, it’s much appreciated. And to introduce myself, I'm Adam Vaites, part of the wholesale team here. I’m here with my three colleagues, we’re actually in the same room, not recording from different houses around London. We've got Melanie Baker senior economist, Jonathan Platt head of fixed income and Trevor Greetham head of multi asset here.

The title of today's webinar is surviving stagflation, so we're going to talk about inflation recession risks. Government, policy, oil prices credit spreads, and then we will give you an outlook going forward.

We will then host a Q&A at the end. So, if you do have any questions, please do ask them through the usual brighttalk portal and we'll endeavour to answer as many as we can, so I'll hand over to you, Melanie, first, please.

Melanie Baker:

So far, we've seen a lot of the flation in stagflation not much of the stag yet. But recession risk is has clearly risen, a few points from me on inflation before we start thinking about recessions, on the left-hand side (not to state the obvious) but we are in a high inflation environment. And first this isn't, as you can see, the high inflation that we had in the seventies, in terms of unionization wage indexation, Central Bank, independence, we’re not at the same place, or facing the same degree of stagflation risk. That clearly doesn't mean that there's nothing to worry about.

Second thing, just to flag that, you know, this is a global issue, the main reason I think is covid as economies locked down across the world, of course we saw central banks easing. And, importantly, we saw government cutting taxes, spending more, providing loan guarantees. Just think there was a lot of policymaker support, and demand to help recover quickly. The supply, of course, got snarled up. Factory shutdowns, people not going to work and supply chain problems emerged, and strong demand and constraints supply has been a recipe for higher prices. And the right-hand side chart shows UK inflation, and much of what has driven and is still driving UK inflation, global factors, not domestic ones.

The orange line on that chart there shows inflation in energy prices, had to put it on a different axis. It's running at about 30% year on year. It will jump will be to 50% when the April rise in energy bills is included from the ONS. The teal line there running at about 8% is non energy industrial goods to kind of core goods prices. And that's where you're seeing important inflation and supply chain problems coming through. The lilac line there is services inflation. And that's where you want to look to see more of the domestically driven bit of the story. And, as you can see, inflation is picking up there, but it isn't yet at high levels, relative to its history. In the US, you can make more of a case that the inflation is more domestically driven, then perhaps you can, in Europe. The particular mix of external versus domestic does matter. It matters for how consumers respond, and it matters to policy makers. And crudely, you can think of externally driven inflation as being more problematic for consumers, and domestically driven inflation justifying, more rate hikes in a sort of crude way.

And then, looking at the second page, a more domestically driven inflation story would see higher wage growth, driving inflation, and we are seeing higher wage growth in the US. In the Euro area, growth measures aren’t moving much, UK is somewhere between the two.

But for now, external factors look to be the big driver, and pay growth isn't keeping up with prices, which is what you can see in that chart. So real pay growth on that left-hand side chart. Pay growth is less than consumer price inflation at the moment. So real pay growth is negative in the euro area and the US, on those measures, and in the UK on the regular pay growth measure at least.

Isn't just high inflation that is the problem. What we see is high inflation in things that consumers can't easily avoid paying for so like energy and food and that clearly leaves households with less money available to spend on other things. And the Bank of England for what it's worth are pencilling in another 40% increase in energy bills in October and for UK aggregate, real household, disposable income falls about one in three quarter percent. And apart from 2011, that will be the worst year, fall for that matter since the data starts in the early sixties. Enough of a fall in real incomes and your consumer spending volumes fall, and falling consumer spending, you're going to get a recession. We’re in a world, where, inflation targeting, central banks, meanwhile, haven’t surprisingly been hiking rates or signalling that they'll do so soon, so, so far so bad for growth, and economists, including me, however, expect inflation to fall later this year in most economies. And for that to ease pressure on the consumer and take some of that pressure off central banks.

Why? It comes back to the externally driven inflation. Again, the idea that commodity prices won't keep on rising at the recent pace, that supply chain problems will ease. We did see some signs of that happening before the Ukraine crisis. And then the headline inflation, as you've seen in those charts. We were looking at is a year-on-year percentage change measure. You can have a jump in the price level. But if you stay there, then your inflation falls back.

The real question isn’t really whether inflation will fall. But will inflation still be uncomfortably high a year from now, even if it's lower than, it is today. Part of the answer is going to come from the labour market. So whether labour market stay tight, we get stronger, wage growth, more of that, domestically driven inflation, and part of that answer will come from inflation expectations, the chart on the right there shows a number of survey based measures, household survey, mostly based measures of inflation expectations and they’ve generally been rising. And many of them are at high levels relative to their history. And people's inflation expectations are, of course, partly driven really by their experience of inflation right now. the longer inflation now stays above target the higher the chance that inflation remains uncomfortably high. Because of these inflation expectations, people start seeing, price rises as inevitable. Workers demand pay, increase. Of course, firms are more willing to grant these, pay increases because they see consumers as being more willing to accept the cost being passed on, and that keeps us in this high inflation. And finally, of course, come back to central banks again.

Now there are ways in which central banks contain inflation, that by raising interest rates, they can cool the level of demand and bring it back down in line with supply and by acting and sounding serious about tackling inflation. They can help lower inflation expectations. The risk of worry about mostly at the moment, is inflation just doesn't fall, as much as expected in that central banks find themselves having to tighten harder and faster. Almost needing recessions to get inflation down. On that gloomy note I’ll hand over.

Jonathan Platt: 

Thanks, Melanie.

So over to bond markets and bond markets have been at the centre of the volatility that we've seen in markets. So, despite the volatility that we've seen in some areas of the equity market, actually, I think, the real focus has been on, on bond markets, since the start of the year. And I've got a chart here, that really shows you what's going on. It's the US Treasury. Kenya yield. So basically, it's doubled in a pretty short space of time. What we're looking at here is a real, major change in interest rate expectations. So, we're looking at short-term interest rates expect to go to 2%. That's a massive change, because even if you think about where we were 18 months ago, that continuation of that really, low interest rate environment. A real challenge to that central bank were really accommodating emphasis on, the labour market needs to get back to where it was pre covid before they were really thinking about tightening policy. That actually seems a long, long time ago now because we've moved on to the situation and we've got tenure yields. Now, up at 3%, in the US, we've got yields almost at 2% in the UK.

And we've got yields above 1% in Germany. And again, if you think about where we were in November last year, if i remember, rightly German tenure yields were -40 or 50 basis points. So, it's a really significant move that we've seen here and that, absolutely reflects the point that Melanie was making.

One of the things that my client's ask me is, well, shouldn't you be looking to invest in index linked bonds in this environment? After all, if expectations have changed as much as I have done, you're going to be better off in index, linked bonds. Well since the beginning of the year, they have been a pretty poor investment, and I was joking to Trevor earlier. This week, that long index linked in the UK has only just beaten Bitcoin this year in terms of performance. So, you're looking at a fall, at the long end of the market in capital terms, of 40%. And that second line really shows you why, that's why that's happened. There’s been a massive change, certainly from a fixed income perspective, it's a massive change, in real yields. So instead of real yields offering you or indexed linked bonds offering you protection.

Implied inflation has changed a bit, but nothing like enough to offset the change in real yields. And that is actually probably the biggest driver of financial markets and it’s the biggest reason that we've seen the selloff in markets since the beginning of the year. that rise in, in real yields. So that's the big picture. 

I'm going to turn now to credit. What I've got here is a chart of triple B sterling, sterling bonds, and it goes back to late 2016. In the middle of that, you can see the spike up there which is the covid spike. But more recently, since the beginning of this year, you can see that move up. And that move up is about 50 basis points in, in slightly over 50 basis points. And this is a risk aversion. This is showing you that investors are needing more compensation to take credit risk. And it's the point again Melanie was making.

If we're actually going into an environment of higher costs for corporates through inflation, but also a worsening growth outlook That's a pretty poor combination. For credit, and therefore, investors are saying, well, instead of paying 100 basis points over government bonds, and this is a credit spread, premium over covered bonds, I want 150, actually I want 170, or 175 over for triple B risk. Um, those of you who know me will know that, well, Jonathan, usually talk positively about credit.

So, how is he going to turn this into a positive story about credit?

Well it’s not that difficult because what we've got to then assess is, are we getting paid for the environment that we're in? Or the environment that we could be in in 12 months’ time. And if you look at defaults in investment grade bonds, and here we are talking about investment grade bonds, yes, the lowest part of the investment grade market, you're still getting paid probably 100 basis points, at least 100 basis points more than you need for just pure historical default risk. Of course, that could be wrong. Historical analysis of where defaults could be out the window, but I don't think that's the that's the case.

So one of the reasons that within our strategies, we're sticking to our exposures to triple B bonds within credit. One of the reasons that we're still overweight credit relative to government bonds, is, well, we're getting paid to take that, that risk, even if the outlook is going to get worse. Actually, the story is the same on the next slide, as well. In fact, the profile of these two charts are very, very similar. So, high yield. So, these are bonds rated below BBB. On a global basis, it's a very similar pattern the spike up in March, which was a bit higher. But that move up, that we've seen, since the beginning of the year, is a very similar pattern. And it's the same factors here. It's investors saying we need more compensation.

Now that wider widening of credit spread, plus the rise in government bonds, now, has taken these yields, and you can't really, you can't pick it up from this chart, but the yield on high yield bonds to six or 7%. Now, that looks to me a pretty attractive yield in the environment that we're in, because I believe like Melanie that although inflation may be sticky, we ask, we, we can see the peak of it in 2022. And that I'm probably not as optimistic as the Bank of England as in terms of their inflation profile, but I do see it coming down. And therefore, those yields that are available in the high yield market, I think look attractive in the present situation.

As I argued for the Triple B, that you're getting paid well, for default risks, so whether your investment grade, or high yield, I think you can say default rates will increase, but your starting point of what, your paying, or what you're getting paid to take that risk, is really attractive. So that's the reason that I'm sticking to my guns on credit.

I'm going to hand over to Trevor now.

Trevor Greetham

Thanks JP, so I'm going to talk about multi asset. And surviving stagflation, for me, is about having the right tools in your armoury in broad multi asset terms. So having things like commodities. Being able to overweight UK equities, value sectors, commercial property. At times, underweight bonds, if you need to, but less underweight than we have been, we were very underway to the beginning of the year but as JP says, yields have risen quite a bit and at times you’ll need to underweight stocks, so I'll talk through some of these sorts of issues. But I'm going to start back at sort of 50,000 feet, looking at business cycles, because what we're really talking about here is stagflation that could result in a recession. And the chart you're looking at is based on business cycles in America back to the mid 19th century. And what it does, it looks at the lengths of expansions, and then the lengths of contractions or recessions since 1857. And those purple bars above the line are the expansions. And you can see the most common length of an expansion before the next recession comes along, is only 2 to 3 years. So business cycles, on average, have been pretty short. They've been about five years in total, 2 or three years up, and 1 or 2 years down. But you can see the far right of your screen, the most recent cycle ended with covid was a whopper, it was 10 years. And in fact, three of the longest cycles you see there on the right-hand side, all happened in our investment careers. So, there was a 10-year cycle ending with covid. There was a 10-year cycle ending with the GFC, the great global financial crisis, and there was a 10-year cycle in the 1990s and what they had in common was a disinflationary backdrop which allowed central banks to course correct along the way, cutting interest rates, if they needed to keep growth going. So, you had the longest ever business expansion, ended with covid and then you had the shortest ever Recession.

Pretty brutal.

That sort of great switching off and switching on again, of the world economy that happened in early 2020, it was only a two-month recession, and then you've had the recovery. And as Melanie says, that the issue here is that you, you had a really short recession, but it wasn't the normal recession, where, the system is basically allowed to clear, you had so much monetary stimulus, fiscal stimulus put in place. That jobs were generally, not entirely everywhere, but generally maintained or they came back very quickly. Credit was bailed out hugely. I mean The Fed was willing to invest about a trillion dollars at one point in credit to stop credit defaults. And that stimulus is still sloshing around, and by rights, Central banks really should have been raising rates in 2021. When growth was strong and inflation was rising, but because of continued covid variant risks, they were saying, no, they were going to keep policy very, very loose.

So, the issue we've got now is we've had the Supercharged stimulus into a supply constrained economy, and it's giving us the inflation problem, and central banks are playing catch up. There are some recession risks. The two things I would point out, which are most concerning at the moment, are what the yield curve is telling us, and what the oil price is telling us, this chart goes back to the 19 seventies, that goes back to about 1972, that chart. And those vertical columns, those sort of lilac columns, are US recessions. At the top of your screen and purple there, you can see the US, 10-year, two-year, yield curve slope, and that has flattened, quite significantly in the last year or so as expectations of quite aggressive federal rate hikes have been factored in.

And you can see that if you look at all of those shaded areas where there were US recessions, it was normal for the yield curve to go flat or to invert slightly just before a recession. So monetary policy expectations, certainly look like recession is possible, Then the oil price as part of the story, too, because all of the recessions on your screen there, apart from the sort of flash crash of covid 19, were also proceeded by quite a big rise in the real oil price. That's the teal line. So, you've got there the Yom Kippur War. The Iranian Revolution. The Gulf War. The Iraq War. The China boom, around the time of the LTCM failure. And the Lehman failure. China was booming commodity prices were skyrocketing and now, of course, you've had Ukraine added on top of an already rising commodity price backdrop. So, recession risks are definitely there.

I was asked the other day when do you think the bear market will end for stocks and I'm not really sure it's properly got going yet. If we have to have a recession, I think there is potential for stock prices to fall for a while. This chart goes back to the late eighties. And what it does in purple, it shows you the performance of global stocks. First is global bonds. And then in teal there, I've just got the US unemployment rate. It looks a bit funny because it's upside down on the right-hand axis. And if I count from the beginning of the screen, that, the turning points in the purple lines of bull and bear markets, it has a peak in 19 90. You will see a trough in 94 the peak in 2000 to trough in 2003, et cetera, et cetera. I can count all together 1 2, 3, 4, 5, 6, 7 8 turning points in financial markets and they're the same age turning points in the teal line, which is the US unemployment rate.

So, the message here is, that a falling unemployment rate means strong growth, and it's good for stocks it’s a bull market. And a rising unemployment rate is bad for stocks. It's a bear market. It's generally relatively good for bonds. My point is we haven't yet seen the trough in unemployment rates, so they are still dropping in the UK that's still dropping in the US. Unemployment rates are still going lower. You'd expect if there's if the central banks need to create spare capacity, you need to create a recession. You'd expect stocks to be pretty soggy and potentially, in a bear market, until the unemployment rate peaks. And we're nowhere near seeing it peak yet.

And just to add to the kind of gloom here if you look back at the historical record there. And again, with the exception of a very weird two month stop and restart of covid, the lengths of these bear markets were four years in the early nineties: three years for the dotcom crash two years. Lehman failure, the GFC. It could be a year or two years, you know, quite normally, with stocks doing pretty badly as unemployment rises. That's if central banks need to create that recession and what we need to avoid that. Is it a spontaneous collapse in inflation.

So, just relating this to where we are in the business cycle. You know we've called this surviving stagflation and people have slightly different definitions of stagflation. The official definition, would be a recession with rising inflation or very low growth, and we don't quite have that yet. But, we certainly have a slowdown, and from an investment clock point of view, we talk about it in terms of is there a slowdown with rising inflation, which on that wave diagram there, the business cycle diagram. The purple line is growth. The red dashed line is inflation. We're very much in that fourth quadrant, the right-hand part of your screen where inflations rising, and growth is slowing down. And historically, if you look at the returns in stagflation, in that table and that goes back all the way to. The early seventies in real terms You've got -0.7% real annualized return from government bonds, -14 from stocks, plus 40 from commodities, and then, cash not quite keeping up with inflation either. That pattern, bonds down, stocks down harder Commodities up. is exactly what we are seeing, as you'll see on the next slide.

So, we are in that sort of stagflation pattern, the far right-hand column here. These are these are sterling returns from different asset classes. And the far right-hand column is year to date. year to date Commodities are up 40%.

You can see commercial property is still pretty strong there. UK stocks doing a lot better than global stocks, Global Stocks down 6, guilts are down 10. So, it's very consistent with that stagflation picture, and the question is whether actually this is just a temporary, dislocation in markets until inflation can already start coming down and will the central banks to really have to follow through and tighten policy. So what can we do about?  Well, the first thing I'll say, let's say the three things from a multi acid point of view you can do is try and prepare your your, your investors for choppier conditions. The first is have a broad approach to diversification. So, what you're looking at on your screen, is, is the gmap growth fund, or the government Portfolio number five, strategic mix, and this has the same sort of level, of Volatility is a 60, 40 balance fund, 60%, stocks, 40%, investment grade bonds, but that 6040

Balanced fund would have about 40% of its assets in North American equities.

A lot of that in tech, and consumer discretionary names, like Tesla, and obviously, suffering quite badly at the moment, and the other 40% would be exposed to the rise in yields, we've seen.

We've got much more diversification here, so, we have as much in UK equities as we have in US equities, UK equities are much more resilient to inflation, much better value at the moment. We've got the commodities, We've got high yield bonds property, and quite low exposure to duration. So if you think inflation is going to remain an issue then it's good to have more of these real Assets, like commodities, like property and the UK tilt that we have in our portfolios. Second thing you can do is be tactical. This is the investment clock picture. We're in the bottom right-hand corner. That's the stagflation stage of the cycle, and that's why we have the word cash written. So cash is King in stagflation, and what you want to be underweight is what's opposite which is stocks. And we've recently moved underweight stocks. We sort of had a sort of had our negativity tempered by the fact that sentiment is very depressed and very gloomy, and you’re probably listening to other webinars a bit like this at the moment. And that means in the short run, you don't want to get too negative, and there could be a bit of a bounce.

But generally this is an environment where commodities are still doing well. We probably need to be underweight stocks. And we're waiting to see inflation drop and, if that happens, that dashed line that moves you towards the left on your screen is we’ll we go next. That will be inflation dropping, and at some point, that would mean we'd start to buy guilts and bonds generally, thinking that yields were high enough, so be tactical, as the business cycle moves. And then finally, depending on the application, you can try to limit downside risk explicitly. And the fund that we have that does this is the multi asset Strategies Fund and that caps volatility in its core portfolio. They started capping volatility and selling equities the week before the Ukraine invasion. What we find historically is this strategy, when we simulated it: it can go sideways or upwards in bear markets by limiting its equity exposure in the core portfolio and adding in tactical asset allocation. So those are the three things there

So, diversify broadly. Be tactical and, if necessary, have a specific strategy, to try and limit downside in a in a bear market. So, how do you survive stagflation from a multi asset point of view? Those are the sort of things we would really, really highlight.

Adam Vaites: 

Excellent. Thanks, Trevor. Thanks, Melanie. Thanks, Jonathan. I think, conscious of time lets try and rattle through as many questions as we can. It all sounds very gloomy. I think one for you Trevor here, what could go right? 

Trevor Greetham:

I don’t want to sound rude Melanie, but Melanie’s forecast could be right. I mean, we've had, we've had we've had one of one-off shocks, one after the other. And, and Andrew Bailey was pointing this out, that you've had the covid shock in this country we’ve had the Brexit shock as well. Brexit, covid. Ukraine, and more recently, we then had the lockdowns in Beijing and Shanghai, which has starved up supply chains again. So, if we could see those supply chains re-open, then immediately it makes things a little bit better. I wouldn’t say that it takes out all risk of recession, but it certainly helps a great deal. And Mel, in terms of the data you're looking at. The most recent data you’re looking at suggests the supply chains haven't shown signs of easing tool yet.

Melanie Baker:

There was a little bit, just before the Ukraine crisis, you can see. You can see some improvement. Not as much as you’d hope by this point.

Adam Vaites: 

Great stuff. Thanks guys. Let’s move to you Jonathon and we've got a question here. Like credit sectors maybe talk about short duration in the market, maybe high yield. Can you give us a bit more on what's offering best value out there?

Jonathan Platt: 

Yes. I'll answer that, one of the worst areas that we're seeing is being financial bonds. So, banks and insurance. So I talked about that 50 60 basis point widen that we've seen generally in indices where you can double that or triple that in terms of the widen you've seen some banks and insurance. They tend to be the high heat, The most sensitive to market moves. Do they offer value at the moment? I think they do.

So the capital position of banks is a lot better than it was 10 or 15 years go, they’re more prudently provisioned I think, so, that would be an area. I find that attractive. I Absolutely reinforce something that Trevor said and it's in the multi asset range, it’s to the fore, diversification in these markets is absolutely key, what you don't want to do is have high sector concentrations.

So, although I like financials, it's not going to be something that we're going to have a massive positioning. I think they're attractive.

You know, one of the things that Royal London asset management is known for is our secured and asset back bonds, and that's an area that has really done well for us in this environment. So, getting close to the assets, having strong covenant protection in this environment that Melanie is talking about, you know, that's, that's, that's a really good position. So, I would, I would say, yes, those financials, banks and insurance attractive given the widening that we've had, make sure you're diversifying your risk, have a bit of high yield in your portfolios and get close to the assets and have strong confidence in your portfolios. That, that would be my recipe for surviving the situations that Melanie and Trevor have described.

Adam Vaites: 

Great, Thanks, Jonathan. And let's have a look at this active versus passive debate.

So, anything you'd like to comment on there Trevor?

Trevor Greetham: 

I think this is no observation, passive investing becomes more and more popular the longer into a bull market you go. Because most of your return is coming from, beta, is coming from market is going up. People start to say, well, why pay an active manager when you get the same returns basically from the bull market, very, very inexpensively. I think there's a bit of a cycle here as well where when you go through a recession that takes a bit of a knocking, because passive investing does tend to concentrate in sectors, you look at the sort of big six tech names in the US at the moment. Technology is currently about 25% of global market cap. The UK market is 2.6% I think, actually has a 4% of global market cap. So you get these really weird sort of sector concentrations, which the passive funds have to follow and they don't tend to invest in the breadth of assets either so commercial property. For example, is bricks and mortar, you need to manage it. You need surveyors, you need to collect rents. Passive funds don't tend to have those exposures.

So I think a combination of the breadth of exposure, you can get, the fact that you can diversify your sector exposure and have less concentration of risk and the fact that tactical allocation can also help to limit some of the losses in bear markets.

Adam Vaites: 

Let’s answer a couple more when you mention you would start buying bonds if you felt inflation peat would the same apply for certain equities, appreciate your more tilted towards value for UK exposure. 

Trevor Greetham: 

Yeah, we've debated this a lot, actually.

If, if inflation were to peak, sort of, let me, let me say spontaneously and therefore, recession risk backs away. Then I think growth sectors and things like US tech could do really well. And it would be a bit of a reversal of what they've suffered in the last few months. But it kind of depends why bond yields are dropping if bond yields are dropping. Because actually, we're tipping into a recession. I'm not utterly sure that the technology is your first port of call. And this is perhaps because the middle of my career was a dotcom crash and bond yields fell for three years and tech kept falling. So the valuations are so high that everything has to be right. So, bond yields are dropping because of a recession, I think I would stay in consumer staples and utilities and more traditional bond proxies rather than tech, although there will be some stocks that have those utility characteristics, which would sail through a recession pretty happily.

Adam Vaites: 

Thanks, Trevor. Our final question here, we've got the impact of a QT on Markets. Jonathan, one for you. 

Jonathan Platt

QT is basically the unwinding, of the bond buying. that central banks have undertaken now over a long period of time. So, during the financial crisis, subsequent events including covid, so, in the UK, for example, that means there is a stock of holding in the central bank of approximately £900 billion. That should be contrasted with a issuance in a year. Of, guilts probably 140 billion, 150 billion something. So it is a good five years of supply that the bank will have to unwind at some point. Now, the Governor talked yesterday about not issuing those bonds back into the market, during periods of market turmoil. My problem with that analysis is that you will always create market turmoil when you, when you're introducing QT, when you're actually selling those bonds back, it's almost impossible not to create some disruption in the market, given the quantum of what we were talking about. So, I fear that they're kicking this can down the road. And I'm picking up a lot what Trevor was talking about. I think in hindsight, but I think also probably with the people in this room, not necessarily just with hindsight that QE program went on for too long. There was too much complacency about what impact that was happening.

And it does distort. I mean, I'm really take issue with the bank. I think it has had some really distorting influences on equality within economies, created bubbles in some areas of the financial market, and that will have to be taken out of the system eventually. So, you know, with all respect, I disagree with the Governor on this, I think we need to move on. Remember the bank thing, the museum. (I’m not sure if they have still got it there) And in the bank of the museum, there is a leaflet on how QE works, and it has got this wonderful infographic. And it says money in there like a black box, so that the other side it says, jobs created. What's the infographic going to be for QT?

Trevor Greetham: 

Is it money out jobs destroyed because, you know, this is going to become a huge political hot potato at the moment? And it's always difficult central bankers to fight inflation they’re never popular, taking the punch, when the party is getting going. Paul Volcker was a hugely hated man when he squeezes inflation out of the US economy in the early 1980’s. But I think it's going to be a really difficult period for those central banks to navigate, but they do need to bring inflation expectations down don’t they Melanie?

Melanie:

Yes they do, this is why we see something, they want to see something very predictable. Very gentle for these reasons. But, yeah, it's interest rates, they are going to be the primary tool here

Adam Vaites: 

Great stuff, there we go, a question answered by all three of our panellists, so, thank you all for your time today. and thank you, Melanie. Thank you, Trevor. Thank you, Jonathan. 

Much appreciated and thanks everyone for joining us today.

For the questions We didn't get through this quite a few. We will come back to you individually and many thanks for those and also if you're looking to ask any further questions, please do get in contact with your usual London business development manager. Or contact on the wholesale side: bdsupport@rlam.co.uk or on the institutional side: institutional@rlam.co.uk

Many thanks for listening and enjoy the rest of your day.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.