Cladding crisis – who will pay?

The weak lira is adding to the inflationary pressures in Turkey. Prices of goods and services in Turkey rose at their fastest pace in20yearsinFebruaryof thisyear,withthe consumer price index up 54.4% year-onyear.Foodpriceinflationroseby65.5%and transportationcostsupby75.8%,risingata rate last seen in March 2002. The extreme inflation is leading to Turks holding increasingly higher levels of their money in foreigncurrency.Householdsavingsarenow 55% denominated in foreign currencies, compared with 49% in 2018, a process that in itself could further weaken the lira.

Turkish Lira/Euro – ECB – 1 year performance

(Graph Source: Bloomberg)

Erdogan ’ s support ratings have been following a similar trajectory to the Lira, with his political party, the AKP, losing control of Istanbul and Ankara in the 2019 elections. Opinion polls suggest voters are deeply unhappy with the economy, with threeoutof fourTurksinJanuarysayingthe governmentwasmismanagingtheeconomy (MetroPoll 2022). Erodgan has promised to bring inflation under control, but with his unwillingness to raise interest rates, the inflationary spill over effects of the Ukraine crisisandsupplychainpressures,meansthat he will have his work cut out.

Cladding crisis – Who will pay?

The debate about illegal and dangerous cladding has been on-going since the Grenfell Tower fire in 2017 in which 72 people died. At first, high-rise tower blocks cladinsimilarmaterialstoGrenfellwerethe subject of scrutiny, but the scale of the project became apparent in 2020, when ministers guided that over 800,000 UK homes should be assessed for fire risk. Until theworktomakethepropertiessafeiseither fully costed or complete, valuers cannot assess the buildings worth, preventing lenders from issuing mortgages on those