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Speaker 1: This is Bloomberg Daybreak Europe for this Tuesday, the twentieth

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Speaker 1: of June in London, coming up today.

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Speaker 2: Six percent rates would tip the UK into recession. That's

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Speaker 2: the assessment of Bloomberg Economists. We have the.

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Speaker 1: Details done and dusted. An ECB policymaker says rate hikes

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Speaker 1: could end this year.

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Speaker 2: The UK's half a trillion pound problem. Research suggests the

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Speaker 2: country is suffering from a five hundred and sixty billion

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Speaker 2: pound investment gap.

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Speaker 3: Johnston's fate and here's what you could have won. Those

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Speaker 3: are the stories we're looking at in today's papers. I'm

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Speaker 3: James Walcock.

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Speaker 1: Plus stabilizing ties. The US and China agree to keep

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Speaker 1: talking after Blencoln's trip to Beijing.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Europe. The business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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Speaker 4: and everywhere you get your podcasts.

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Speaker 1: Good morning from London.

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Speaker 2: I'm Stephen Carroll and I Mana Edwards. You're listening to

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Speaker 2: day Break Europe. Let's get to our top stories. Bloomberg

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Speaker 2: Economics says that if UK interest rates hit six percent,

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Speaker 2: it will lie two percent of GDP new and Pots

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Speaker 2: reports hotter.

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Speaker 5: Than expected inflation and wage growth. I've been fueling bets.

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Speaker 5: The Bank of ing them will need to keep raising

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Speaker 5: UK interest rates. Bloomberg Economics says that if the BWE

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Speaker 5: follows market pricing for ratikes, bringing them close to six percent,

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Speaker 5: it would lead to a deeper economic contraction this year

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Speaker 5: and next. The combined effect would be a full two

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Speaker 5: percent drop in GDP over the period. But our economics

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Speaker 5: say they don't see the Bank of following that path.

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Speaker 5: They're expecting rates to peak at five percent in August

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Speaker 5: and stay there until next spring. We'll get more clarity

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Speaker 5: on the bwi's thinking at midday on Thursday in London.

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Speaker 5: I'm you in Pots Boomberg day Break.

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Speaker 4: Europe.

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Speaker 1: The European Central Banks the Anastoranara says that tightening may

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Speaker 1: end this year and called for a gradual and measured steps.

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Speaker 1: Speaking at an event in Athens, he wore that the

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Speaker 1: ECB should curb inflation while ensuring financial stability, but avoid

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Speaker 1: driving the economy into a recession. Meanwhile, the Central Bank's

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Speaker 1: Vice president least To Gindas says inflation is sure to moderate,

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Speaker 1: but the pullback in core price pressures may not be

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Speaker 1: so pronounced. The CB still sees inflation above its two

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Speaker 1: percent goal. In twenty twenty five.

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Speaker 2: New research suggests that years of under investments have left

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Speaker 2: the UK with a five hundred and sixty billion pound

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Speaker 2: funding gap. Analysis by the IPPR says the UK is

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Speaker 2: now at the bottom of the G seven league table

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Speaker 2: for business investments. Their Associate director for Economy, George Dibb,

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Speaker 2: says Britain is increasingly falling behind its peers.

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Speaker 6: The dating is really pretty stark. We're very low on

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Speaker 6: business investment, very low compared to other DU seven economies,

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Speaker 6: but we're also quite low on public investment. And in fact,

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Speaker 6: if you look at gross investment across the economy as

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Speaker 6: a whole by everyone, we have much lower than other

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Speaker 6: DU seven economies. In fact, the last time we were

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Speaker 6: even average was in nineteen ninety, so this is multi

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Speaker 6: decade story.

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Speaker 2: The research from George Deabante's colleagues comes on the same

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Speaker 2: day the UK slid six places on the IMD Global

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Speaker 2: Economic Competitiveness Index.

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Speaker 1: UBS is reportedly facing hundreds of millions of dollars in

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Speaker 1: penalties over credit Swiez's mishandling of our Kigos the ft

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Speaker 1: says Swiss, US and UK regulators have all now completed

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Speaker 1: their investigation into the affair. The paper ads that the

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Speaker 1: FEDS fined could be as much as three hundred million dollars,

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Speaker 1: while the UK's Prudential Regulation Authority could impose a penalty

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Speaker 1: of one hundred million pounds. Switzerland's FINMA regulator doesn't have

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Speaker 1: the authority to impose fines. UBS has inherited a long

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Speaker 1: list of unresolved cases following the completion of its emergency

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Speaker 1: takeover of Credit Suisse.

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Speaker 2: US Secretary of State Anthony Blinkin says his trip to

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Speaker 2: China has achieved its goal, with the two sides restoring

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Speaker 2: some senior level communication. Tensions have fled in recent months

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Speaker 2: between the countries over everything from trade barriers and Taiwan

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Speaker 2: to an alleged Chinese spy balloon. On Monday, Blinkin met

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Speaker 2: with Chinese President Shijingping, who said he welcomed the steadying

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Speaker 2: of bilateral ties.

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Speaker 7: State to state interactions should always be based on mutual

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Speaker 7: respect and sincerity. I hope that through this visit, mister Secretary,

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Speaker 7: you will make more positive contributions to stabilizing China.

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Speaker 2: US relations Sijing Ping, speaking there through a translator. The

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Speaker 2: Chinese President's meeting with America's top diplomat is also seen

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Speaker 2: as a way of laying the groundwork for in person

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Speaker 2: She Biden talks later this year.

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Speaker 1: Ali Baba is replacing Daniel Shang as chairman of the group.

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Speaker 1: Bloomberg's Brian Curtis has more from Hong Kong.

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Speaker 8: Executive vice chair Joseph Si becomes chairman of the board.

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Speaker 8: Ci owns the Brooklyn Nets and is a confidante of

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Speaker 8: Ali Baba. Co founder Jack mah Eddie Wu, now chairman

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Speaker 8: of the Taubau and Tia Mall divisions, takes over his CEO,

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Speaker 8: the outgoing Jong Ran Ali Baba as it bled market share.

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Speaker 8: His shock departure comes after Baba announced a six way restructuring.

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Speaker 8: The is an effort to gin up growth by creating

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Speaker 8: standalone firms that are more nimble. Some analysts we spoke

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Speaker 8: to said the changes show that Jack Ma is still

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Speaker 8: the spiritual leader of Ali Baba in Hong Kong, Brain, Curtis, Bloomberg,

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Speaker 8: Debreak Europe.

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Speaker 1: Those are some of our top stories on the program

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Speaker 1: this morning. So the story, of course was around yesterday

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Speaker 1: in the UK high mortgage rates heading the highest level

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Speaker 1: since the Mini budget era, close to fourteen year highs.

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Speaker 1: A different side of the property story being reported by

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Speaker 1: our colleagues this morning when it comes to trying to

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Speaker 1: lure investors to one of the luxury towers and the

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Speaker 1: Nine Alms development in London. This is a tower that's

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Speaker 1: owned by Damac Properties, to Bai based company. They to

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Speaker 1: try and attract some of the buyers to it. They

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Speaker 1: got VERSACEI in todop the interiors. Apparently not enough because

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Speaker 1: high end investors don't want to live in Nine Alms.

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Speaker 2: That's very interesting, isn't it. So it's not only Vesaci

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Speaker 2: that matters. It's also location, location, location.

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Speaker 1: Well exactly. This is the estate agent Peter Weatherill quoted

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Speaker 1: in this story sayings the Tarran Versata would be ideal

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Speaker 1: for nights Bridge or in Mayfair, but perhaps Vauxhall was

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Speaker 1: just a step too far and on behalf of South

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Speaker 1: London is everywhere. Foxhole is very nice.

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Speaker 2: Yeah, we apologize to everybody who loves Foxhall. I'm sure

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Speaker 2: there are several.

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Speaker 1: Anna. Anyway, it's an interesting story about how the luxury

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Speaker 1: property market is also being squeezed at a time that

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Speaker 1: we're looking at, of course, much bigger consequences across the

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Speaker 1: rest of the property market from higher interest rates as well.

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Speaker 2: Let's get to an interesting conversation about the UK, not

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Speaker 2: about the property market per se, but about some of

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Speaker 2: the other really fascinating dynamics that are happening within the

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Speaker 2: UK story. This week, a string of hotter than forecast

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Speaker 2: wage and CPI readings has brought about a dramatic repricing

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Speaker 2: a UK interest rate expectations. Joining us now is Boomberg's

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Speaker 2: UK correspondent, Lizzie Burden, who has de sales. Good morning Lizzie,

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Speaker 2: So Bloomberg Economics has been looking into what six percent

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Speaker 2: UK interest rates would mean for the UK economy. And

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Speaker 2: this is all because the market is increasingly looking at

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Speaker 2: one hundred and twenty five we were talking about yesterday,

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Speaker 2: or one hundred and fifty basis point hikes that in

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Speaker 2: normal language is a one and a half percent increase

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Speaker 2: from where we are right now, which would take us

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Speaker 2: to an interest rate of six percent. And they say

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Speaker 2: that would take us into recession. Give us some detail

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Speaker 2: then yeah.

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Speaker 9: I'll just preface this with my outrage at your anti

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Speaker 9: South London sentiment.

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Speaker 2: So it's very specific. It was not generally about South.

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Speaker 9: London, you're outnumbered.

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Speaker 2: It was specifically about Vauxhall Station.

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Speaker 9: But this is fascinating research on the terminal using the

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Speaker 9: shock function SHOK, and it allows you to plug in

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Speaker 9: a shock and get the economic impact. So our economist,

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Speaker 9: our senior UK economist Dan Hanson at Bloomberg Economics has

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Speaker 9: plugged in what would happen if rates go to six

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Speaker 9: percent as some traders expect, and he sees a two

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Speaker 9: percent fall in GDP. Of course there is this lag

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Speaker 9: in monetary transmission. You've got to wait for people to

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Speaker 9: remortgage their fixed term mortgage, of whom there are many.

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Speaker 9: But if inflation is still raging more than expected in

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Speaker 9: the readings to come, it's going to be hard for

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Speaker 9: policymakers to sit on their hands and stop hiking. Even

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Speaker 9: though six percent is higher than most economists anticipate for

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Speaker 9: the peak rate, and in fact, Dan Hanson and other

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Speaker 9: economists reckon that the rates are the hikes are going

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Speaker 9: to stop in August at five percent. Now we've got

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Speaker 9: this Bank of England decision coming on Thursday, we've got

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Speaker 9: inflation data coming tomorrow. The question really is whether this

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Speaker 9: new data pushes some of the hawks on the committee

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Speaker 9: into voting for a half point hike and whether they

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Speaker 9: can tild the balance.

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Speaker 1: Is there any likelihood of that at this stage? I mean,

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Speaker 1: judging by the expectations that we have for this week's.

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Speaker 9: We've had month after month of upside inflation surprise. So

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Speaker 9: let's see not just what happens to the headline rate

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Speaker 9: but also the core rate. That's what's really worrying the

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Speaker 9: Monetary Policy Committee. But I think you mentioned about the

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Speaker 9: report about food price inflation from the Lloyd's Research optimistic

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Speaker 9: signs there. It would be happy news not just for

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Speaker 9: the Bank of England but also for the Prime Minister

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Speaker 9: Rishie Sunak if there are signs of inflation easing, because

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Speaker 9: of course his target is to have inflation by year end.

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Speaker 9: And the Work and Pension Secretary Mel Stride has been

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Speaker 9: on the airwaves just this morning saying that they are

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Speaker 9: still hope for the government, that the government that it

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Speaker 9: can hit its target using what he's called sound fiscal

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Speaker 9: policy alongside the efforts of the Bank of England.

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Speaker 2: Okay, so we'll watch that interesting balance and dance between

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Speaker 2: the fiscal and the monetary Meanwhile, the IPPR has a

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Speaker 2: report out it's saying that the UK is suffering from

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Speaker 2: investment phobia. Lizzie, what does that mean.

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Speaker 9: It's talking about years of under investment, holding back growth,

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Speaker 9: especially the green industries, and it really comes back to

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Speaker 9: what Bank of England policy maker Catherine Mann was talking

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Speaker 9: about in an essay for the Resolution I Think Foundation Think,

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Speaker 9: which is that Britain is too focused on fighting fires,

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Speaker 9: lurching from crisis to crisis, whether it's Brexit, the pandemic

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Speaker 9: or the war in Ukraine, rather than long term planning.

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Speaker 9: And at the same time as this IPPR research, you've

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Speaker 9: also got the annual World Competitiveness ranking from the International

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Speaker 9: Institute for Management Development, dropping the UK six places from

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Speaker 9: twenty ninth two to twenty ninth out of sixty four countries.

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Speaker 9: And that's partly down to what it calls government incompetence

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Speaker 9: as well as increased bureaucracy. As you know, we were

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Speaker 9: meant to have this bonfire of red tape post Brexit,

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Speaker 9: but actually it seems like that's gone on the bonfire

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Speaker 9: itself and they observe even more bureaucracy, which confirms what

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Speaker 9: we've heard anecdotally from business leaders week after week, including

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Speaker 9: in that fantastic piece of reporting by our very own

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Speaker 9: Caroline Hepka on this idea of Britain being adrift. So

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Speaker 9: when you combine the impact of tight monetary policy with

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Speaker 9: years of under investment, it really is worrying for Rishie Sunak,

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Speaker 9: where none of his top priorities is to grow the economy.

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Speaker 1: Okay, Lizzie Burden are UK correspondent, thank you very much

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Speaker 1: for that. Up next, Johnson's fate and here is what

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Speaker 1: you could have won.

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Speaker 4: Now the paper review on blue Bird, Daybreak Europe, the

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Speaker 4: news you need to know from today's papers Bloomberg.

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Speaker 2: James Wilcock joins us now with a look at what

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Speaker 2: is in the papers. James, good morning. It feels like

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Speaker 2: a cliche to say it was another momentous day in

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Speaker 2: UK politics. I don't know what on the scale of momentus.

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Speaker 2: You know, there's there's a continuum, isn't there We seem

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Speaker 2: to find ourselves at the top end of it. Often.

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Speaker 2: What are the newspapers saying then about the vote on

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Speaker 2: Boris Johnson.

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Speaker 3: I think I could just hear as you sort of

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Speaker 3: saw the words Boris Johnson, all the wind leave your

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Speaker 3: sales Anna.

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Speaker 2: I mean no, it's just there's there's been a long

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Speaker 2: tail to his prime ministership.

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Speaker 3: This is true. I mean and after a year last

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Speaker 3: year where three prime ministers and what were in office

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Speaker 3: in one year, it is fair to say like, well,

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Speaker 3: sure this has all done. Now what is fascinating is

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Speaker 3: as cabinet meet this morning to sort of discuss the

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Speaker 3: big sort of mortgage issues everything Lizzie was talking about

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Speaker 3: in the economics. Parliament last night voted to censure a

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Speaker 3: former prime minister and if he worse than an MP

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Speaker 3: would have suspended him for ninety days in a massive

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Speaker 3: class amount of time. And they did so with a

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Speaker 3: majority of three hundred and fifty four MPs to just

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Speaker 3: seven and that is and then six Conservatives and that

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Speaker 3: seven versus one hundred and eighteen who voted forth. It

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Speaker 3: is a real marker of kind of a milestone of

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Speaker 3: where Boris Johnson's career has gone in like twelve months

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Speaker 3: ago he was the Prime Minister and now he struggles

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Speaker 3: to muscle the support in Parliament at all. He obviously

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Speaker 3: marshaled his own supporters not to go because it would

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Speaker 3: be a site of how many did support and how

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Speaker 3: many didn't and I mean the ft lead to day

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Speaker 3: on trees and maze comments the former Prime minister where

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Speaker 3: she took her thinly veiled swipe a rich so soon after,

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Speaker 3: but he himself not showing up. Probably a few ministers

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Speaker 3: too speak at the debate was Penny Morden. Many ministers

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Speaker 3: didn't show or that's worth noting six cabinet ministers did

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Speaker 3: vote to back the report. I mean, I note that

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Speaker 3: Politico pointed out to Republica, an Italian newspaper. Their UK

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Speaker 3: correspondent used a quote to say, sort of if you

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Speaker 3: sit by the river long enough that you'll see what

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Speaker 3: enemy's body is pilified to refer to trees in May.

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Speaker 3: In short, it seems to be sort of a day

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Speaker 3: of drama that shows off quite how far we have

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Speaker 3: come from the days of chaos that you sort of

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Speaker 3: lamented last year. Anna, in terms of it does seem

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Speaker 3: to be at least for the moment over In terms

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Speaker 3: of Boris Johnson's parliamentary career, and that is everything from

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Speaker 3: the ft to the Telegraph to the Times, their opinion

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Speaker 3: writers openly said that Boris Johnson made us look like fools.

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Speaker 1: Yeah, very interesting, as you say, the closure of that

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Speaker 1: chapter of Boris Johnson's political career. Barizon's are not the

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Speaker 1: only recent former prime minister in the news. I mean,

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Speaker 1: you could take your pick to be fair, but both

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Speaker 1: the Guardian and the Telegraph are writing about Liz Trust well.

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Speaker 3: So it's interesting from this Trust. She was speaking at

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Speaker 3: the News Exchange conference in Dublin, and she argued that

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Speaker 3: politics is a branch of the entertainment industry and says

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Speaker 3: that in reality, for everything from public sector leaders to

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Speaker 3: big corporations to the media have shifted to a more

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Speaker 3: left wing view of economics, and especially in the media's case,

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Speaker 3: are more concerned with the froth than the substance they said.

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Speaker 3: I mean, it's amazing that I can come on air

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Speaker 3: and use the quote comparing me to a lessis was

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Speaker 3: not particularly funny. But that she argues was it was

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Speaker 3: more about the woman than about the substance of the

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Speaker 3: women's arguments. It's a difficult one because obviously I was

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Speaker 3: here on Bloomberg Radio. I'm sure this trust is open

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Speaker 3: to come on any time if she wishes to and

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Speaker 3: discuss the economics of her arguments. We at the time

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Speaker 3: were massively concerned with the guilts with the mortgage market

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Speaker 3: and with the economic fallout around her budget. But she

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Speaker 3: argues that, especially as a woman in charge, the comparaison

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Speaker 3: to the Iron Lady, the comparison to the branding meant

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Speaker 3: that the sort of real substance of her message was lost.

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Speaker 3: It is interesting that so far she's only spoken to

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Speaker 3: in UK broadcasters and the only one she has talked

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Speaker 3: to is gb News. So we look forward to see

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Speaker 3: her give interviews around the space, where I'm sure many

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Speaker 3: will ask her about the ecomic substance of her arguments.

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Speaker 2: Yeah, moving on the Wall Street Journal crunching the numbers

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Speaker 2: on pay in the s and P.

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Speaker 3: Five hundred, So if you could pick where the work,

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Speaker 3: it is interesting to know the median salary of some

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Speaker 3: of the biggest US companies in the s and P.

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Speaker 3: Five hundred. And what is fascinating is despite a year

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Speaker 3: mark by tech layoffs and higher inflation, number two and

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Speaker 3: number three in that list are still Meta and Google,

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Speaker 3: with a median salary of almost three thousand dollars for

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Speaker 3: Meta and two hundred and eighty thousand for alphabets. Now,

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Speaker 3: if you wanted to know the worst places, it is automakers.

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Speaker 3: It is retailers like Walmart and have loads and sort

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Speaker 3: of say the twenty seven thousand sort of mark in

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Speaker 3: terms of dollars, but broadly despite sort of obviously the

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Speaker 3: very good news we've been follow about US inflation coming down,

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Speaker 3: about one hundred of the companies said their medium workers

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Speaker 3: pay rose ten percent or more, which is roughly the

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Speaker 3: same number said that in twenty twenty one, and two

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Speaker 3: hundred and eighty seventy eight companies in the S and

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Speaker 3: P index their median workers pay is higher in twenty

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Speaker 3: twenty two than the year before, or so the pay

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Speaker 3: is still going up, which will have a knock on

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Speaker 3: effect going on long term. And the other big trend

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Speaker 3: seems to be, especially in the tech companies. Although the

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Speaker 3: median pay is rising, headcount is shrinking and often those

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Speaker 3: laid offer them being absorbed into SMEs