I am a glorified retail agent, Mervyn King is a lauded central banker.

Inflation in the UK is temporary and beyond our control, according to one of us.

However, Sterling has fallen by over 25% against its trade weighted index in the last 3 years, due to the deliberate policy of debasing the pound through low interest rates and QE, in order to boost our export economy.

In the same time the Swiss Franc and the Norwegian Krone have appreciated significantly.

UK inflation >4%, Norwegian 1.1%, Switzerland 0.5%

I am a glorified retail agent, Mervyn King is a lauded central banker.

One of us is economically illiterate?

In anticipation of Messrs Bernanke and King cracking up the printing presses almost all asset classes are rallying.

-Gold is up as a hedge against the “enevitable” ensuing hyper inflation.

-Bonds are up as we will in any case slip into a Japan style deflationary spiral (plus all of those new dollars and pounds will be used to buy them). And….

-Shares are up, because that’s what happened last time; although net new investment is dwarfed by money going into the above.

Clearly this will end badly as only one scenario can play out.

But what of property?

Even discounting the precipitous lurch of -3.6% in the Halifax price index last month, the trend for house prices is clearly down and the consensus in the world of commercial property is that a double dip of some sort is inevitable.

So how will a further £50bn or so swilling around the investment coffers of banks and institutions effect us?  The correct answer wins a multi-million pound fortune and as much gold as he/she can eat.

Frankly I haven’t got a clue.

But the following might be possible:

-People buy into property as a hard asset hedge against inflation.

-Funds get a higher weighting into property in a search for yield.

-The banks have so much cash they start lending to any fat middle aged bloke who has renovated a flat before. Again.

Or maybe none of the above.

-In a response to inflation, interest rates shoot up and the vast amount of LTV busted loans default on interest payments too; we get a crash that makes 2008 look like tea party.

-A deflationary spiral undermines further rental growth and property is shunned for a decade as an asset class.

-The banks divi the excess capital amongst themselves in the form of huge bonuses and the industry has a second systemic crash in 2015 as a result of a moral and physical implosion brought on by an excess of hookers and cocaine.

Or maybe none of the above.

Anyone who has read the Ellandi blog will know that I am pretty left of centre for a property chap, heck I’ll even admit to the fact that I was actually a card carrying member of the Labour Party until well into my 30’s.

Which is why I really must explain why I am voting Tory next May.

Ah, the 50% tax rate I hear you say?

Nope.

To be fair earning £150k next year is something to aspire to.

It’s more the case of being terrified what a hung parliament would do to the UK in these difficult times and according to The Independent (see more proof of my pinko-lefty credentials), this is almost a dead cert.

Tuen Draaisma of Morgan Stanley has a fear for next year that “The UK becomes the first of the G10 to have a major fiscal crisis as elections lead to a hung parliament”.

Why would a hung parliament be such a bad thing?

I’ve often thought that Proportional Representation would lead to a nice ineffectual government stripped of dogma; after all decades of coalitions don’t seem to have held Germany back?

The difference, of course, being that the Germans are not fiscally incontinent, have credibility in respect of keeping on top of inflation and don’t rely on the rest of the world to fund its deficits.

Despite still being in recession, the rest of the world hasn’t punished the UK too badly.  They have even let us get away with a fairly blatant spot of competitive devaluation, which has certainly beggared the shopkeepers of the RoI that neighbour the border with North.  However “the markets” tolerance of this is built on the premise that after the election, one of the main parties will cut the crap and get on with a seriously painful bit of tax raising and service cutting to get somewhere near a sustainable level of borrowing.

In the event of a hung parliament, or worryingly even the anticipation of a hung parliament, where every painful decision will be fought over tooth and nail or even avoided, UK plc will lose any credibility that it has overseas.  What happens then?

-The pound tanks (even further)

-We loose our AAA rating, bond rates shoot up; we can no longer sustain our massive debt

-Inflation rockets due to the increased cost of raw material imports

-Interest rates are ratcheted up to curb inflation

-Plague, pestilence, famine……..

You get the picture?

Basically Iceland without the free hot showers and Bjork.

So I am going to vote Conservative for the first time this June.  Having said that though, I am not sure how effectual this will be given that I live in Lambeth.

Maybe PR is not such a bad thing?

Like many active buyers with cash, we too have recently fallen victim to “free valuation” scam, being perpetrated by certain vendors who feel quite content to let you do a number of weeks detailed work on a purchase only to be coquettishly told that they are no longer sellers.

This spring bounce seems to have got a number of people quite intoxicated and they have once again fallen in love with the assets that they have rarely given the time of day to, let alone asset managed, for the last decade.  Their rose tinted glasses have given a pulchritudinous hue to investments that three months ago they would have “stapled” their nearest and dearest to, to facilitate a sale.

But, vendors should have a weather eye to the cost of finance and the impact over the medium term that this will have on what we are prepared to pay.  Whilst the number of banks willing to lend is undoubtedly on the increase, so is the accepted margin that they feel they can get away with reasonably charge and underneath all of the current mood music is the distant rumbling of inflationary expectations.

Despite the best efforts of the BoE to keep down the yield curve through Quantitative Easing, 10 year gilts now stand higher than when they began the process, 5 year SWAP rates have gone up 50 bps in the last month; for purchasers already struggling justify >20% IRR this is 0.50% onto the initial yield.

But, inflation is good for property, isn’t it?

Despite being a child of the seventies, I don’t even, unfortunately, remember Sunderland’s legendary FA cup win against dirty Leeds, never mind macro-economic factors, but there seems to be an obvious flaw in this logic, certainly in the short term.

Given the dire outlook for rental values over the short term, where pricing power rests solely with the tenants, I just don’t see inflation feeding through into rental growth in a meaningful way.  It is certainly conceivable that investment property could be caught between the horns of falling rents and increasing cost of finance, that will rapidly squeeze out the positive yield gap that makes property an attractive proposition.

Why are we still buyers then?  Obviously we believe that we will make more money out of an asset than an incumbent owner who are firefighting on all fronts and our investors are backing us over the medium to long term.  But this is going to be a long slow recovery, with many false dawns and as Mike Slade has wryly observed more of a www shaped recession.