WEBVTT - Daybreak Weekend: Fed Meeting, BOE Decision, BOJ Policy 0:00:00.280 --> 0:00:07.960 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.560 --> 0:00:12.800 This is Bloomberg day Break Weekend, our global look at 0:00:12.840 --> 0:00:15.080 the top stories in the coming week from our Daybreak 0:00:15.080 --> 0:00:17.840 anchors all around the world. Straight ahead on the program, Well, 0:00:17.840 --> 0:00:20.599 look ahead to this week's monetary policy decision from the 0:00:20.640 --> 0:00:23.560 Fed what it means for interest rates. I'm Tom Busby 0:00:23.600 --> 0:00:24.160 in New York. 0:00:24.400 --> 0:00:26.759 I'm Caroline Hepkea in London, where we're looking at whether 0:00:26.840 --> 0:00:29.720 the Bank of England does decide to hold steady on 0:00:29.840 --> 0:00:30.680 interest rates. 0:00:30.920 --> 0:00:33.400 I'm Doug Prisner looking at the challenges for the Bank 0:00:33.440 --> 0:00:36.960 of Japan as it faces a decision on interest rates 0:00:36.960 --> 0:00:37.800 in the coming week. 0:00:38.520 --> 0:00:42.560 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.600 --> 0:00:46.280 eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.800 --> 0:00:51.040 Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 0:00:51.479 --> 0:00:54.680 Sirius XM one twenty one, and around the world on 0:00:54.720 --> 0:00:57.880 Bloomberg Radio, dot Com and the Bloomberg Business App. 0:01:02.720 --> 0:01:03.280 Good day to you. 0:01:03.360 --> 0:01:06.560 I'm Tom Busby. We begin today's program with the Federal Reserve, 0:01:06.920 --> 0:01:09.920 the FED, concluding its latest two day meeting, issuing a 0:01:10.040 --> 0:01:13.160 monetary policy decision on Wednesday, and for more on what 0:01:13.240 --> 0:01:17.399 to expect, what policymakers are watching, we're joined by Michael McKee, 0:01:17.400 --> 0:01:22.520 Bloomberg International Economics and Policy correspondent. Well, Michael, no change 0:01:22.560 --> 0:01:25.240 in rates in three earlier FED meetings so far this year. 0:01:25.640 --> 0:01:27.759 What are you expecting to hear from the Federal Open 0:01:27.800 --> 0:01:29.479 Market Committee this Wednesday? 0:01:30.360 --> 0:01:33.360 The headline will be no change in race, and I 0:01:33.440 --> 0:01:35.400 think we're going to see that for a little while 0:01:35.800 --> 0:01:39.080 this meeting and then probably the July meeting. It probably 0:01:39.120 --> 0:01:42.520 won't be until September that the Fed has enough of 0:01:42.560 --> 0:01:45.400 a feel for the economy to know whether anything else 0:01:45.520 --> 0:01:50.960 needs to be done. Right now, inflation is under control, basically, 0:01:51.000 --> 0:01:54.120 we saw this last week CPI and PPI come in 0:01:54.200 --> 0:01:58.560 lower than expected. There were some tariff related increases in 0:01:58.640 --> 0:02:01.800 some categories, but nothing that screams problems for the Fed 0:02:01.920 --> 0:02:05.440 at the moment. But all the tariffs haven't been put 0:02:05.480 --> 0:02:07.600 on yet, so they're going to have to wait and 0:02:07.640 --> 0:02:11.760 see the June inflation numbers and the July inflation numbers 0:02:11.840 --> 0:02:14.160 before they might want to make any changes. 0:02:14.360 --> 0:02:16.440 Well, that's the wild card in all this, and we're 0:02:16.440 --> 0:02:18.160 looking at a date right now, and of course this 0:02:18.200 --> 0:02:22.760 is fluid and always changing. July ninth, when the president's 0:02:22.840 --> 0:02:26.919 ninety day you know, pause on tariffs goes into effect. 0:02:27.160 --> 0:02:29.440 I guess after that things could really change. 0:02:29.600 --> 0:02:33.920 They could really change if indeed the tariff's go into effect. 0:02:33.919 --> 0:02:36.320 That's the problem for the FED is nobody has any 0:02:36.320 --> 0:02:39.639 idea what Donald Trump is going to do, so it's 0:02:39.680 --> 0:02:43.760 impossible to model what's going to happen. He raised steel 0:02:43.800 --> 0:02:49.360 tariffs to twenty five percent, and then in the PPI 0:02:49.480 --> 0:02:52.519 we saw that steel prices were up seven percent last month, 0:02:52.600 --> 0:02:54.960 So there is a cause and effect there that will 0:02:55.000 --> 0:02:58.440 probably feed into other categories in the CPI and PPI, 0:02:58.600 --> 0:03:01.440 depending on what gets tarff when it gets tariffed, how 0:03:01.520 --> 0:03:05.360 much the tariffs are, and when they take effect. So 0:03:05.520 --> 0:03:07.679 it's really hard for the FED to think anything other 0:03:07.720 --> 0:03:11.640 than we don't need to do anything because inflation is 0:03:12.200 --> 0:03:16.079 under control and at this point the economy is hanging 0:03:16.080 --> 0:03:16.400 in there. 0:03:16.440 --> 0:03:16.639 Now. 0:03:17.600 --> 0:03:19.960 Jobless claims are a little elevated, but it's a seasonal 0:03:19.960 --> 0:03:23.800 adjustment time of year, so maybe they're not signaling a 0:03:23.919 --> 0:03:27.440 terrible change in the labor market. But I Fed'll be 0:03:27.560 --> 0:03:29.840 keeping an eye on those two things to see if 0:03:30.240 --> 0:03:32.680 there is any move either direction needed. 0:03:33.160 --> 0:03:36.640 Another thing is economic growth, because the fear of these tariks, 0:03:36.680 --> 0:03:40.200 the fear of inflation, really changed things in two earlier 0:03:40.240 --> 0:03:43.080 readings on GDP in the first quarter, and we're going 0:03:43.160 --> 0:03:44.520 to get a third reading pretty soon. 0:03:44.480 --> 0:03:47.560 Right, Yes, we'll get a third reading. That will be 0:03:47.600 --> 0:03:51.600 the final reading for the month, and what we're going 0:03:51.640 --> 0:03:56.000 to see is basically little change. But then we'll get 0:03:56.040 --> 0:03:58.480 the second quarter numbers and we'll see a big change 0:03:58.520 --> 0:04:01.400 because in the first quarter grow was held down by 0:04:01.600 --> 0:04:04.040 the fact that we imported a lot of stuff as 0:04:04.080 --> 0:04:07.280 people tried to front run the tariffs, and that is 0:04:07.720 --> 0:04:11.960 basically comes out of GDP, so we had a negative print. 0:04:12.160 --> 0:04:16.520 But in the current quarter, the second quarter, people are 0:04:16.600 --> 0:04:19.800 not buying a lot of imports. Imports are way down, 0:04:19.880 --> 0:04:23.599 so that will artificially add to GDP. So again for 0:04:23.640 --> 0:04:26.880 the fat they'll probably average the two quarters, but it 0:04:26.920 --> 0:04:29.000 isn't going to be a clean read on exactly what's 0:04:29.040 --> 0:04:30.120 happening now. 0:04:30.160 --> 0:04:34.560 People, you say, are buying fewer of the imports, but 0:04:34.640 --> 0:04:39.600 are we still seeing jittery consumers, especially lower end consumers 0:04:39.680 --> 0:04:41.320 holding back on all purchases. 0:04:41.720 --> 0:04:43.880 We're seeing jittery consumers, but they don't seem to be 0:04:43.920 --> 0:04:48.480 holding back on all purchases. Right now, consumers seem willing 0:04:48.560 --> 0:04:52.240 to spend on what they need to spend on. Gasoline 0:04:52.279 --> 0:04:54.560 prices have come down. That gives people a little bit 0:04:54.560 --> 0:04:56.560 of a tailwind, little bit of extra money to spend 0:04:56.600 --> 0:04:59.839 on other things, which food prices went up, so that 0:05:00.120 --> 0:05:02.400 the other thing that they watch closely. But this is 0:05:02.440 --> 0:05:05.360 also not a period of time when there is a 0:05:05.400 --> 0:05:08.760 lot of what we would call extra spending because we're 0:05:08.880 --> 0:05:13.640 past the holidays now, we're waiting for basically back to school, 0:05:13.680 --> 0:05:16.280 which will start in July, and if people are going 0:05:16.320 --> 0:05:18.480 to be spending a lot on that or whether they're 0:05:18.480 --> 0:05:21.919 going to hold off. One thing that we are watching 0:05:22.600 --> 0:05:26.560 these days is vacations. Airfares are way down because air 0:05:26.600 --> 0:05:29.160 travel is way down. Hotels are down. These are the 0:05:29.160 --> 0:05:30.840 time of years when you would think they would go up, 0:05:30.880 --> 0:05:33.720 but the prices of those things have come down because 0:05:33.760 --> 0:05:36.200 people aren't traveling as much, which is a sign of 0:05:36.920 --> 0:05:38.320 some nervousness. 0:05:38.640 --> 0:05:40.479 Let's talk about the future of the FED, because this 0:05:40.560 --> 0:05:44.440 has been a subject last week. Jerome Pal's eight year 0:05:44.520 --> 0:05:47.600 tenure as FED chair will end in May of next year. 0:05:48.120 --> 0:05:51.760 We know what President Trump says about him what's next 0:05:51.760 --> 0:05:54.159 for the FED. And I know that there's one big 0:05:54.240 --> 0:05:54.880 name out there. 0:05:55.240 --> 0:05:56.800 Well, there are a couple of big names out there, 0:05:56.839 --> 0:05:59.440 because the President has made no secret of people that 0:05:59.480 --> 0:06:04.960 he thinks could be FED chair. Along with Scott Besson, 0:06:05.040 --> 0:06:08.080 whom you're referring to this last week Bloomberg reporting he's 0:06:08.080 --> 0:06:13.240 on the list, Kevin Walsh, the former FED governor, has 0:06:13.279 --> 0:06:15.800 been on the list twice. He was on the list 0:06:15.839 --> 0:06:20.480 before Jay Powell was chosen, and then Kevin Hassett, who 0:06:20.560 --> 0:06:24.320 is the director of the National Economic Council. So there 0:06:24.400 --> 0:06:28.160 are a number of names out there. The question is 0:06:28.520 --> 0:06:32.640 what does Trump really want. The feeling has been and 0:06:32.720 --> 0:06:35.480 the impression you get from Donald Trump is that he 0:06:35.520 --> 0:06:38.599 wants somebody who's going to cut interest rates. We don't 0:06:38.680 --> 0:06:42.960 know a lot about what Scott Besson thinks about rates. 0:06:43.080 --> 0:06:46.120 We do know that Kevin Walsh, as much as Trump 0:06:46.240 --> 0:06:48.640 likes him, has been a hawk all his life on inflation. 0:06:48.760 --> 0:06:50.799 So he's probably not going to be ready to cut 0:06:51.400 --> 0:06:55.080 interest rates so right away. And the issue for the 0:06:55.120 --> 0:06:58.679 President is he can fill one seat for a governor 0:06:58.680 --> 0:07:02.040 whose term is expiring in January, Adriana Kugler, and then 0:07:02.080 --> 0:07:06.520 he could fill the pole seat if j Powell resigns 0:07:06.560 --> 0:07:10.200 as a governor when his term as FED chair is up, 0:07:10.840 --> 0:07:13.800 so he's got one or two seats, and the FED 0:07:14.280 --> 0:07:17.840 will not otherwise turn over during his term, so he 0:07:17.880 --> 0:07:21.560 doesn't have an opportunity to pick enough people to influence 0:07:21.600 --> 0:07:24.200 monetary policy. Even if he got somebody who walked in 0:07:24.240 --> 0:07:26.360 the door and said, I want us all the cut raids, 0:07:26.480 --> 0:07:28.120 the rest of the FED isn't going to go along 0:07:28.200 --> 0:07:30.760 if they see inflation is still a danger. 0:07:31.120 --> 0:07:32.760 Well, a lot to look forward to, and we can 0:07:32.800 --> 0:07:35.680 look for the Fed's next decision on interest rates this Wednesday, 0:07:35.680 --> 0:07:38.600 two pm Wall Street Time and our thanks to Michael McKee, 0:07:38.600 --> 0:07:42.480 Bloomberger International Economics and Policy correspondent. We moved now to 0:07:42.520 --> 0:07:45.480 a closer look at the troubled US housing industry, which 0:07:45.480 --> 0:07:48.520 has been stung by stubbornly high interest rates, sky high 0:07:48.600 --> 0:07:51.280 home prices, and a lot of economic uncertainty. And this 0:07:51.400 --> 0:07:53.880 week we get housing starts for the month of May 0:07:53.920 --> 0:07:56.120 and the latest earnings from one of the nation's biggest 0:07:56.120 --> 0:07:58.880 home builders. For more on what all this might tell 0:07:58.960 --> 0:08:01.160 us about the state of the house sector, we're joined 0:08:01.160 --> 0:08:06.160 by Drew Reading Bloomberg Intelligence US Home building analyst, Well, Drew, 0:08:06.240 --> 0:08:08.640 let's start with those earnings I'm out on Monday from 0:08:08.640 --> 0:08:11.600 the Miami based builder Lenar, because I think they may 0:08:11.640 --> 0:08:14.240 illustrate a lot of the challenge the home building industry 0:08:14.280 --> 0:08:16.680 is facing right now, a lot of those challenges. So 0:08:16.960 --> 0:08:18.240 what do you expect to see? 0:08:19.000 --> 0:08:21.800 So, the two main things that investors focus on for 0:08:21.880 --> 0:08:25.480 the builders are orders in gross margin. Now, among the 0:08:25.600 --> 0:08:29.320 large publicly traded home builders, Lenars operating a somewhat unique 0:08:29.320 --> 0:08:33.240 strategy in that they're focused primarily on driving pace, so 0:08:33.320 --> 0:08:36.920 higher sales absorptions over price, and they've been willing to 0:08:36.960 --> 0:08:39.600 sacrifice their gross margin to do so. So they'll give 0:08:39.679 --> 0:08:41.920 us a good read on demand trends. We've heard from 0:08:42.040 --> 0:08:45.200 some other builders. You know that the market softened in April. 0:08:45.240 --> 0:08:47.800 We saw that in the data, but maybe improved a 0:08:47.800 --> 0:08:49.720 little bit in May. So we think that any pickup 0:08:49.720 --> 0:08:54.040 in demand is still likely the result of an elevated 0:08:54.160 --> 0:08:56.080 use of sales and incentives. Builders have had to be 0:08:56.120 --> 0:08:58.880 really aggressive. So we're looking for order growth of about 0:08:58.960 --> 0:09:02.400 eight percent with a margin just under eighteen percent, But 0:09:02.440 --> 0:09:06.280 we expect the company to communicate further pressure through the 0:09:06.320 --> 0:09:09.560 remainder of the year. You know, during the first quarter 0:09:09.600 --> 0:09:12.200 a number of builders actually reduced their full year guidance 0:09:12.240 --> 0:09:15.320 for closings, but just given Lenar's business model, we think 0:09:15.320 --> 0:09:18.240 there's probably less risk for this. So you know, they're 0:09:18.280 --> 0:09:21.200 expecting to close eighty six to eighty eight thousand homes 0:09:21.200 --> 0:09:24.520 this year, and really their primary objective is to turn 0:09:24.720 --> 0:09:29.840 through their inventory to generate cash and drive shareholder friendly actions. 0:09:30.440 --> 0:09:32.880 Now, also this week we get housing starts for May. 0:09:33.160 --> 0:09:34.560 So what do you expect to see there? 0:09:35.160 --> 0:09:37.600 Housing starts has been trending lower over the last several months. 0:09:37.640 --> 0:09:39.839 I think we're down about seven percent year to date 0:09:39.840 --> 0:09:42.800 on the single family side, and we expect builders to 0:09:42.840 --> 0:09:47.320 maintain this more cautious approach to production. You've got the 0:09:47.360 --> 0:09:51.880 combination of weak demand trends along with rapidly increasing inventory levels, 0:09:52.920 --> 0:09:55.360 including one of the highest levels of completed new home 0:09:55.400 --> 0:09:57.599 inventory since two thousand and nine. So you're going to 0:09:57.640 --> 0:10:00.880 see builders continue to utilize incentives to work through the 0:10:00.960 --> 0:10:04.319 existing inventory before putting new projects in the grounds. 0:10:04.440 --> 0:10:07.200 Well, let's talk about some of those incentives. What are 0:10:07.240 --> 0:10:08.280 the more popular ones. 0:10:08.920 --> 0:10:11.560 So I think it's pretty well understood that builders have 0:10:11.600 --> 0:10:14.160 been aggressive in the use of mortgage rate buydowns to 0:10:14.200 --> 0:10:19.280 help with the affordability equation. Generally speaking, we think builders 0:10:19.360 --> 0:10:21.360 like to maintain a spread of about one hundred to 0:10:21.360 --> 0:10:24.960 one hundred and fifty basis points versus the headline mortgage rate, 0:10:25.000 --> 0:10:28.640 which is just under seven percent right now. I mean, 0:10:28.679 --> 0:10:31.240 we've seen some builders be even more aggressive getting rates 0:10:31.280 --> 0:10:34.440 into the five percent range, But it's really dependent on 0:10:34.480 --> 0:10:37.120 the buyer. So in addition to what they're doing on 0:10:37.160 --> 0:10:39.400 the buydown side, you also have others who would rather 0:10:39.520 --> 0:10:43.760 up for closing costs, assistance, or credits towards structural options 0:10:44.000 --> 0:10:47.640 or design options. Typically you'll see the first time or 0:10:47.800 --> 0:10:50.640 entry level buyer opt for the rate buydown because they're 0:10:50.640 --> 0:10:53.720 more dependent on that monthly payment, while buyers you know 0:10:53.760 --> 0:10:56.160 with a stronger profile in the move up or second 0:10:56.160 --> 0:10:59.800 time move up market will typically look for, you know, 0:11:00.400 --> 0:11:03.320 credits towards structural and design options. 0:11:03.600 --> 0:11:07.000 Are you seeing anything from the Trump administration that is, 0:11:07.200 --> 0:11:11.040 any moves to help home buying, to help you know, 0:11:11.080 --> 0:11:15.359 people secure loans. I know, some of the mortgage guarantee 0:11:15.400 --> 0:11:17.719 those those you know Fanny made, Freddie mac There's a 0:11:17.760 --> 0:11:20.640 lot of movement there, but what is being done out 0:11:20.679 --> 0:11:21.320 of Washington? 0:11:22.440 --> 0:11:24.200 Yeah, so you know, there was a big topic of 0:11:24.240 --> 0:11:27.400 discussion on the campaign trail. There hasn't been a whole 0:11:27.400 --> 0:11:29.600 lot of movement right now. I mean the three biggest 0:11:29.600 --> 0:11:33.120 things I think from the political spectrum. People are looking 0:11:33.160 --> 0:11:36.960 at our tariffs, which you know, thankfully for the builders, 0:11:37.240 --> 0:11:39.800 is less of a concern perhaps than it was, you know, 0:11:39.840 --> 0:11:43.959 a month or so ago, as well as immigration and deregulation. 0:11:44.920 --> 0:11:47.200 You know, I think there's more focus on immigration. You 0:11:47.280 --> 0:11:49.720 mentioned that, you know, we're starting to see more ice rates. 0:11:50.040 --> 0:11:52.559 It's certainly a headline risk to the industry. You've got 0:11:53.040 --> 0:11:56.080 more than thirty percent of trade contractors are farm born, 0:11:56.120 --> 0:11:58.040 and there's estimates you know that one and ten may 0:11:58.080 --> 0:12:01.320 be undocumented. Now, most of the builders that we've talked 0:12:01.320 --> 0:12:03.800 to have acknowledged that this is a risk, but I 0:12:03.800 --> 0:12:06.360 think to this point there there hasn't been too much 0:12:06.440 --> 0:12:10.040 of an impact on the actual job site. You know, 0:12:10.120 --> 0:12:12.160 this is as you mentioned before, the lack of tree 0:12:12.240 --> 0:12:15.040 labor has been an ongoing issue for the industry really 0:12:15.080 --> 0:12:17.319 since the last downturn, because you have a lot of 0:12:17.360 --> 0:12:20.320 people switch industries, You've had a lot of people age 0:12:20.360 --> 0:12:23.560 out of the industries, so you know, that's really been 0:12:23.600 --> 0:12:25.760 a focal point for the last several years. And to 0:12:25.800 --> 0:12:29.080 the extent that you know that the labor market tightens 0:12:29.160 --> 0:12:31.920 up further because we're we're losing some more of the workforce. 0:12:32.280 --> 0:12:34.440 Now you're looking at the cost impact for the builders. 0:12:34.720 --> 0:12:36.760 Yeah, just another challenge for those builders. 0:12:36.800 --> 0:12:36.959 Well. 0:12:36.960 --> 0:12:40.959 Our thanks to Drew Redding, Bloomberg Intelligence US home building analyst. 0:12:41.280 --> 0:12:43.320 Coming up on Bloomberg day Break weekend, we'll look at 0:12:43.320 --> 0:12:45.880 whether the Bank of England will decide to hold steady 0:12:45.880 --> 0:12:49.600 on interest rates. I'm Tom Busby and this is Bloomberg. 0:12:59.280 --> 0:13:01.760 This is Bloomberg Daybreak weekend, our global look ahead at 0:13:01.800 --> 0:13:04.320 the top stories for investors in the coming week. I'm 0:13:04.360 --> 0:13:07.240 Tom Busby in New York. Up later in our program 0:13:07.240 --> 0:13:09.360 a look ahead to the Bank of Japan meeting and 0:13:09.360 --> 0:13:12.679 what that could mean for monetary policy moving forward. But first, 0:13:12.679 --> 0:13:16.000 the Bank of England policymakers will once again gather on 0:13:16.040 --> 0:13:19.720 Threadneedle Street to determine the country's interest rate path. How 0:13:19.760 --> 0:13:23.800 will the Monetary Policy Committee deal with inflationary pressures as 0:13:23.840 --> 0:13:27.760 the UK economy and the employment market soften. For more, 0:13:27.880 --> 0:13:30.000 Let's go to London and bring in Bloomberg Daybreak. Euro 0:13:30.120 --> 0:13:32.280 banker Caroline hepgar Tom. 0:13:32.400 --> 0:13:35.520 The Bank of England has been slowly cutting interest rates 0:13:35.520 --> 0:13:39.160 since last year, lowering boring costs twice in twenty twenty 0:13:39.240 --> 0:13:43.280 five to four and a quarter percent, but tax rises 0:13:43.320 --> 0:13:48.040 in April, including on employers from higher national insurance contributions, 0:13:48.080 --> 0:13:52.000 have pushed inflation up. There's a big question about how 0:13:52.040 --> 0:13:55.160 the bank deals with this amid an economy in the 0:13:55.280 --> 0:13:58.880 UK that appears to be losing some steam. So do 0:13:59.000 --> 0:14:02.360 the nine member committee at the Bank of England opt 0:14:02.360 --> 0:14:05.440 to skip a rate cut this month and what then 0:14:05.600 --> 0:14:09.240 of the rest of the year? Economic growth began twenty 0:14:09.320 --> 0:14:12.200 twenty five with a bang, it's now dealing with the 0:14:12.240 --> 0:14:16.480 fallout of some US tariffs, and the Bank's decision comes 0:14:16.520 --> 0:14:19.240 only a few days after the Chancellor set out the 0:14:19.240 --> 0:14:22.200 government's spending plans for the next three to four years, 0:14:22.560 --> 0:14:25.840 a record funding boost for the National Health Service but 0:14:26.040 --> 0:14:29.760 tighter budgets for less favored government departments. 0:14:30.080 --> 0:14:30.240 Well. 0:14:30.320 --> 0:14:34.200 Joining me is Bloomberg's chief UK economist, Dan Hanson and 0:14:34.280 --> 0:14:37.320 our senior economics reporter Phil Aldrich. Very good to have 0:14:37.400 --> 0:14:39.640 both of you with me. What do you make of 0:14:39.640 --> 0:14:41.800 the economic picture in the UK right now and whether 0:14:41.840 --> 0:14:47.560 it means interest rate cuts coming. Has the inflation outlook improved? 0:14:49.040 --> 0:14:53.080 Yeah, obviously, as Dan said that there's been a there's 0:14:53.080 --> 0:14:55.600 this temporary hump in inflation which is caused by a 0:14:55.600 --> 0:15:00.680 holload of regulatory household bills which would uterize and that 0:15:00.800 --> 0:15:02.760 increase has happened, and so we've seen that bump. So 0:15:03.000 --> 0:15:05.200 the Bank is trying to look through it and that 0:15:05.440 --> 0:15:08.880 and they're looking particularly at wages and the labor market. 0:15:08.920 --> 0:15:11.840 I mean, you'd hear this from members of the committee 0:15:12.400 --> 0:15:16.640 and that you know that the process is proceeding there, 0:15:17.000 --> 0:15:19.760 they would like it to be proceeding faster, for them 0:15:19.760 --> 0:15:26.080 to cut faster. There's this they have this quarterly trajectory 0:15:26.160 --> 0:15:28.200 for interest rate cuts when they which is which is 0:15:28.200 --> 0:15:31.800 communicated through the gradual and careful language, which remains in place. 0:15:31.840 --> 0:15:33.640 So you don't think, I mean, it doesn't look like 0:15:33.680 --> 0:15:37.320 the governor wants to move from that quarterly pace of cuts. 0:15:37.360 --> 0:15:39.600 And you know, two of the internal members at the 0:15:39.600 --> 0:15:44.400 bank are actually quite hawkish and they don't so Hugh 0:15:44.480 --> 0:15:48.960 pill has already skipped one meeting, so he's voted not 0:15:49.080 --> 0:15:51.760 to cut when when everyone is expecting him to. And 0:15:51.840 --> 0:15:55.360 Clai Lombardelli, who's the Deputy Governor Hughes, the chief economist, 0:15:55.600 --> 0:15:59.480 that they prepare the forecasts, and she and Hugh are 0:15:59.600 --> 0:16:03.400 clearly quite concerned about the stickiness of inflation in the UK. 0:16:03.520 --> 0:16:06.360 So there is that you've got to think about the 0:16:06.480 --> 0:16:08.920 nine member committee when you're thinking about whether the bank 0:16:09.000 --> 0:16:10.280 is going to cut, and you've got to think about 0:16:10.280 --> 0:16:12.960 who you know, they've got to get five people doing it, 0:16:13.000 --> 0:16:14.840 and I think that will be tricky in June. I 0:16:15.080 --> 0:16:17.000 would have thought that in August it's pretty I mean 0:16:17.040 --> 0:16:18.560 it is nailed on in the markets, it seems to 0:16:18.600 --> 0:16:21.560 be completely nailed on, and the economic situation in the 0:16:21.640 --> 0:16:23.920 UK it's it's kind of mixed. If you look at 0:16:24.320 --> 0:16:26.320 if you look at some of the surveys, the business surveys, 0:16:26.320 --> 0:16:29.680 they've been picking up people. Businesses seem more confident. You know, 0:16:29.800 --> 0:16:33.160 there's there's strong profitability among or increasing profitability among small 0:16:33.200 --> 0:16:38.000 businesses and households and businesses are both setting on huge 0:16:38.040 --> 0:16:41.600 cash balances. But actually what's happening in the economy is 0:16:41.600 --> 0:16:44.440 that you know, things things up there. Obviously labor market, 0:16:44.600 --> 0:16:48.400 the employment has risen. There's been this these damaging tax 0:16:48.520 --> 0:16:51.400 rises on business from the Chancellor which only came into 0:16:51.440 --> 0:16:55.640 effect in April. Energy bills are still high and there's 0:16:55.800 --> 0:16:59.600 genuine just just concerns about, you know, the policy outlook 0:16:59.600 --> 0:17:01.360 and whether the more tax risers are going to be coming. 0:17:01.400 --> 0:17:03.840 So you know, this is this is holding back the 0:17:03.880 --> 0:17:07.000 animal spirits. But you can see like the potential for 0:17:07.600 --> 0:17:11.320 a sort of a release of growth energy at some point. 0:17:11.440 --> 0:17:13.120 It's just it's not quite happening yet. 0:17:13.600 --> 0:17:15.840 The backdrop to this Dan of course also in recent 0:17:15.920 --> 0:17:18.640 days is actually is like cooling in terms of economic growth, 0:17:18.640 --> 0:17:21.720 at least on a monthly basis. Though, so again I 0:17:21.720 --> 0:17:24.920 guess the state of the UK economy from your perspective. 0:17:25.200 --> 0:17:28.280 Yeah, I mean I broadly agree with what Phil said there. 0:17:28.359 --> 0:17:31.280 I think we've had a we've had a cooling in activity. 0:17:31.320 --> 0:17:34.399 It was pretty expect widely expected. The fall was a 0:17:34.440 --> 0:17:37.199 bit sharper than people thought, but most people thought there 0:17:37.240 --> 0:17:38.679 was going to be a fall in GDP. And it 0:17:38.720 --> 0:17:42.119 relates to this idea that the first quarter of the 0:17:42.200 --> 0:17:46.199 year was exceptionally strong, partly to do with what's been 0:17:46.200 --> 0:17:49.560 going on with tariffs and firms front loading in anticipation 0:17:49.640 --> 0:17:55.280 of tariffs. And I think the broad picture is consistent 0:17:55.400 --> 0:17:58.400 with what the Bank of England set out in its 0:17:58.400 --> 0:18:01.000 May forecast, which is you had this wrong, starts the year, 0:18:01.320 --> 0:18:03.280 and then the remainder of the year is going to 0:18:03.280 --> 0:18:06.639 be significantly weaker. So I think on the growth side, 0:18:06.880 --> 0:18:08.840 there's nothing that's going to push them one way or 0:18:08.840 --> 0:18:12.680 the other in terms of speeding up or slowing down 0:18:13.480 --> 0:18:16.520 how fast they cut interest rates. I think that's the 0:18:16.560 --> 0:18:19.600 bit of information that is new to them relative to 0:18:19.880 --> 0:18:23.000 well relative to what they knew in May, is on 0:18:23.000 --> 0:18:25.080 the labor market. And it does look like the labor 0:18:25.119 --> 0:18:28.399 market has called faster than they were expecting. So, you know, 0:18:28.480 --> 0:18:31.080 all else equal, that is a that is a dubbish signal, 0:18:31.119 --> 0:18:33.400 and the markets have responded to that. They've moved from 0:18:33.440 --> 0:18:36.840 pricing one and a bit cuts for the remainder of 0:18:36.880 --> 0:18:41.160 the year to fully pricing two and it's quite possible, 0:18:41.200 --> 0:18:44.199 you know that there's more more to come there. But 0:18:44.280 --> 0:18:47.080 I think that's that's the news. Isn't going to be 0:18:47.160 --> 0:18:48.960 enough to push them to cut interest rates in June? No, 0:18:49.040 --> 0:18:49.920 I don't think it will. 0:18:50.600 --> 0:18:50.919 Will it. 0:18:51.720 --> 0:18:53.800 If the trend continues, I think it will give them 0:18:53.800 --> 0:18:56.920 the confidence to carry on cutting. As Phil said, at 0:18:56.920 --> 0:18:59.120 this quarterly pace over the remainder of the year. 0:18:59.359 --> 0:19:00.000 Yeah. 0:19:00.040 --> 0:19:03.560 I remember speaking to Petra tag from a Manpower UK, 0:19:03.640 --> 0:19:06.159 which is the big recruitment firm on Blueberg Radio and 0:19:06.200 --> 0:19:09.760 she was saying that there is a lot of nervousness 0:19:09.960 --> 0:19:12.560 for employers at the moment, or that they are feeling 0:19:12.640 --> 0:19:18.280 very nervous currently. Look, the other issue is the kind 0:19:18.280 --> 0:19:21.960 of ramifications of Bailey's decision when it comes to Chance 0:19:22.040 --> 0:19:24.399 of Rachel Reeves, who has also recently set out her 0:19:24.720 --> 0:19:28.639 spending plans for effectively the rest of her term or 0:19:28.640 --> 0:19:31.480 the rest of this kind of parliamentary term. And so 0:19:31.800 --> 0:19:35.520 have a listening now to Chief EMEA Market strash is 0:19:35.640 --> 0:19:40.400 Karen Ward at JP Morgan talking about actually the government's 0:19:40.440 --> 0:19:43.919 debt bill and the possibilities and the difficulties that the 0:19:43.920 --> 0:19:45.439 government has with that. Have a listen. 0:19:46.240 --> 0:19:49.120 We have to get productivity going here in the UK. 0:19:49.240 --> 0:19:51.040 I mean, if you look at the long term projections 0:19:51.040 --> 0:19:54.479 the OBR do it. It's their lesser red report than 0:19:54.480 --> 0:19:57.800 their sort of year ahead projections. But the trajectory over 0:19:57.840 --> 0:20:00.440 the next fifty or so years for government and debt 0:20:00.520 --> 0:20:04.520 is unpretty over two hundred and fifty percent. If a 0:20:04.640 --> 0:20:08.000 rising productivity scenario, if there is not a recovery in 0:20:08.040 --> 0:20:10.800 productivity that's headed more towards six hundred percent of GDP. 0:20:11.119 --> 0:20:13.600 So we absolutely have to get growth going. We have 0:20:13.640 --> 0:20:17.000 to get investment going. That's the reason we haven't got productivity. 0:20:17.160 --> 0:20:20.560 Companies are not equipping their staff with better skills and 0:20:20.600 --> 0:20:23.360 better equipment. And until we get that going, then we're 0:20:23.359 --> 0:20:26.320 going to be in this perennial conversation about why there 0:20:26.320 --> 0:20:29.280 isn't enough growth and why therefore we don't have money 0:20:29.320 --> 0:20:30.600 to fund public services. 0:20:30.720 --> 0:20:33.320 So that was JP Morgan's Karen Ward there who was 0:20:33.359 --> 0:20:37.000 speaking to us in the last few days. Phil, what's 0:20:37.040 --> 0:20:42.400 the link then between you know, the cost of boring 0:20:42.640 --> 0:20:45.640 and the UK's debt issues. I mean Karen was talking 0:20:45.640 --> 0:20:49.600 about it in very long term horizons, but but how 0:20:49.600 --> 0:20:50.840 do you thread that needle? 0:20:51.640 --> 0:20:54.000 Well, obviously, the faster the Bank of England brings down 0:20:54.480 --> 0:20:56.640 interest rates, then the more that's going to send messages 0:20:56.640 --> 0:20:59.440 through to the through the market and the whole curve 0:20:59.560 --> 0:21:03.560 or potentially drop, and that will help the chancer because 0:21:03.600 --> 0:21:06.239 their interest is one hundred and one hundred to one 0:21:06.280 --> 0:21:08.400 hundred and ten billion pounds a year across the forecast, 0:21:08.400 --> 0:21:11.720