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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the.

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Speaker 3: Bloomberg dbq AT podcast. Good morning, It's Thursday, the eighteenth

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Speaker 3: of December. I'm Caroline Hepka in London.

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Speaker 1: And I'm Stephen Carolin Brussels. Coming up today, markets expect

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Speaker 1: a Bank of England rate reduction, but disagreement remains over

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Speaker 1: how many more cuts to expect in twenty twenty six.

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Speaker 3: Breaking through a crude ceiling, BP names Meg O'Neil as

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Speaker 3: the first female CEO of an oil major.

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Speaker 1: Plus private credit is giving European banks a novel way

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Speaker 1: into real estate deals, but it's causing concern for some.

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Speaker 3: Let's start with the roundup of our top stories.

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Speaker 1: The Bank of England will likely deliver a pre Christmas

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Speaker 1: interest rate cut today is concerns shift away from inflation

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Speaker 1: and toward the uk struggling economy. That's after data showed

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Speaker 1: consumer prices rose by a slower than expected three point

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Speaker 1: two percent in the year to November. Traders and economists

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Speaker 1: now expect the central Bank to reduce its benchmark rate

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Speaker 1: by a quarter point to three point seventy five percent.

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Speaker 1: That would be the lowest in three years. But Bloomberg Opinions.

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Speaker 1: Marcus Ashworth says the Central Bank has been too slow

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Speaker 1: to cut.

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Speaker 4: I would expect probably a six to three vote to

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Speaker 4: cut by twenty five basis points that still needs in

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Speaker 4: behind the FED and my way way higher in Europe

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Speaker 4: and look missing the point here. I think inflation can

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Speaker 4: be as low as two percent. Either target could even

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Speaker 4: be by the April data, which is when all the

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Speaker 4: government revisions come in, and then we know laer point

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Speaker 4: five is coming out out of inflation dead anyway regardless,

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Speaker 4: but certainly by the summer. And therefore I think interest

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Speaker 4: rates are too high in the UK the.

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Speaker 1: View of Bloomberg Opinions Marcus Ashworth. There as markets are

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Speaker 1: pricing in another cut by the end of April. Bloomberger

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Speaker 1: will have live coverage and analysis of the decision at

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Speaker 1: twelve mid day London time.

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Speaker 3: Now, Britain's worklessness crisis maybe on the mend. Buried in

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Speaker 3: the UK employment data earlier this week, the rate of

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Speaker 3: people neither in work or looking for it has fallen

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Speaker 3: to twenty one percent. That's lower than at any point

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Speaker 3: in the twenty tens and roughly at pre pandemic levels.

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Speaker 3: Bloomberg Samuel Etienne has more on the story.

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Speaker 2: The UK has wrestled with work in activity those neither

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Speaker 2: in work nor looking for it for a long time,

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Speaker 2: but the problem seems to be easing back down. According

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Speaker 2: to Britain's latest labor market survey. It's largely because the

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Speaker 2: cost of living is pushing people back into jobs. A

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Speaker 2: decline in early retirees and those caring for their family

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Speaker 2: is offsetting the number of people out of the workforce

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Speaker 2: due to long term thickness, which affects two point eight

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Speaker 2: million adults. Others point to immigration boosting the data or

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Speaker 2: suspect the UK statistics are inaccurate. In London, Samuel Etien Bloomberg.

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Speaker 1: Radio, the European Central Bank is widely expected to keep

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Speaker 1: policy rates on hold at its meeting today. New economic

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Speaker 1: projections are likely to point to solid growth in the

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Speaker 1: euro Area, while policymakers are confident inflation won't stray excessively

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Speaker 1: from their target. That decisions at one fifteen pm UK time,

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Speaker 1: with the press conference from Christine Laguard thirty minutes later.

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Speaker 1: Sweden's Rix Bank and Norway's nor His Bank are also

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Speaker 1: expected to keep rates on hold in their decisions today.

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Speaker 3: In corporate news, BP has appointed Woodside's Meg O'Neill as

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Speaker 3: its CEO, making her Big Oil's first female leader. The

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Speaker 3: shakeup at BP comes after a period of lagging behind

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Speaker 3: its rivals and pressure from activists investor Eliott Management. Blobig

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Speaker 3: Ta added Baio has more war.

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Speaker 5: A botched pivot towards renewables, an activist investor pressure are

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Speaker 5: just some of the issues BP has faced in recent months. Now,

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Speaker 5: the business is banking on newly appointed CEO Meg O'Neill

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Speaker 5: to spearhead its turnaround plan focused on its court oil

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Speaker 5: and gas offering. According to analysts, O'Neill's engineering and operations

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Speaker 5: approach suggests back to basics for BP, who have faced

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Speaker 5: growing demands to exit the renewable space. Statement BP said

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Speaker 5: executive Carol Howe will step in as interim CEO, filling

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Speaker 5: in for outgoing Murray Acincloss until O'Neill's starts in April

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Speaker 5: in London.

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Speaker 3: To You, added by Bloomberg Radio.

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Speaker 1: Open Ai has had funding talks with investors to raise

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Speaker 1: tens of billions of dollars at a valuation of seven

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Speaker 1: hundred and fifty billion dollars. That's according to tech news

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Speaker 1: website The Information, which reported the discussions were preliminary and

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Speaker 1: subject to change. Speaking before these reports, our executive editor

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Speaker 1: for Global Technology, Peter Elstrom said, open ai is looking

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Speaker 1: for new ways to grow.

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Speaker 6: There are a lot of deals going on in AI

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Speaker 6: right now, and open ai really is at the heart

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Speaker 6: of so many of them. So open ai has been

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Speaker 6: Samultman and open ai have been diversifying their suppliers in

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Speaker 6: a number of key areas.

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Speaker 1: Bloomberg's Peter Elstrom was speaking as open Ai has raised

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Speaker 1: billions in recent years at ever larger valuations, including initial

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Speaker 1: talks this month with Amazon for a ten billion dollar investment.

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Speaker 1: The chattyb team maker was most recently valued at five

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Speaker 1: one hundred billion in a deal that allowed some employees

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Speaker 1: to sell shares.

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Speaker 3: And lastly, Chancellor Friedrich Mertz says that German troops might

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Speaker 3: participate in a coalition to protect any Ukraine peace deal.

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Speaker 3: In an interview with German broadcasters ZDF, the leader floated

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Speaker 3: the idea while saying we are not there yet. The

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Speaker 3: presence of German troops on territory of the former Soviet

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Speaker 3: Union is a sensitive issue due to the atrocities committed

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Speaker 3: by the Nazis in the region during World War II.

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Speaker 3: Mertz's comments, coupled with Germany's record amounts of military spending,

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Speaker 3: come as European leaders meet today to try to break

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Speaker 3: a deadlock on how to use frozen Russian assets to

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Speaker 3: support Ukraine. And those are our top stories for you

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Speaker 3: this morning. In terms of the markets, Asian stocks are falling.

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Speaker 3: It comes after losses for US secuities in asdak fell

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Speaker 3: one point nine percent yesterday. In video shares sliding three

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Speaker 3: point eight percent, the S and P five hundred below

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Speaker 3: the fifty day moving average. President Trump talked about announcing

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Speaker 3: his FED chair pick soon. In terms of what we're expecting,

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Speaker 3: three point seventy five for the Bank of England, two

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Speaker 3: percent from the ECB, that's the expectation from the rate

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Speaker 3: cut decisions or rape decisions today, four point one four

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Speaker 3: percent for US Benjamin tennire treasury yields and gold near

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Speaker 3: a record high. Those are the markets.

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Speaker 1: In a moment, we'll bring you everything you need to

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Speaker 1: know ahead of today's BOE rate decision, plus why banks

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Speaker 1: including nat West and Bartley's are teaming up with private

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Speaker 1: credit to invest in property. But first, Caroline I have

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Speaker 1: been allowed out of the radio studio I have been

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Speaker 1: a strayed from my studio where have you been, to

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Speaker 1: do a bit of reporting. I've been looking at some

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Speaker 1: of the best restaurants in Brussels, a terribly difficult assignment,

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Speaker 1: as you might imagine, but look, it's been a really

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Speaker 1: interesting way to get to know this city that I

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Speaker 1: only moved to this year. So I think it's a

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Speaker 1: great way to get to know anywhere is to eat

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Speaker 1: your way through it, and that's what I've been doing

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Speaker 1: my best to do. So our food editor gate Creator

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Speaker 1: commissioned me to write a five top tables piece. We've

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Speaker 1: talked about some of these some of the other cities

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Speaker 1: they've covered as well. But Brussels is an interesting case

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Speaker 1: because it's such a cosmopolitan place, I mean, one of

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Speaker 1: the most in the world. In fact, one hundred and

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Speaker 1: eighty six nationalities living this city as well. Of course

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Speaker 1: you get cuisine from all over Europe but further afield

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Speaker 1: as well, so I picked out some I went kind

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Speaker 1: of old and new to some new openings. Also one

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Speaker 1: of the kind of old traditional dining rooms in the

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Speaker 1: city as well. But also can't do this sort of

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Speaker 1: story without talking about obviously the frit traditional Brussels, you know,

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Speaker 1: necessity and the one I picked is Maison Entoine, which

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Speaker 1: is not very far from the European Quarter here. It's

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Speaker 1: actually Angler Merkel once popped down there in the middle

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Speaker 1: of a summit for such a few woid didn't it.

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Speaker 1: I was so excitly for a little kind of cup

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Speaker 1: of chips as well. My favorite part about it is

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Speaker 1: actually you can on the square. It's a takeaway stand,

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Speaker 1: but you can take the chips and sit and on

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Speaker 1: one of the bars terraces if you order a drink

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Speaker 1: as well, and have some tips there too. And there

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Speaker 1: are thirty difference asks us to try and working my

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Speaker 1: way slowly through them.

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Speaker 3: I love that story. Yes, good stuff. I'm glad that

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Speaker 3: you're getting to know Brussels and enjoying it and as

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Speaker 3: you say, easing your way through the city. Marvelous. And

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Speaker 3: you can of course read the story on the Bloemberg

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Speaker 3: Tunnel if you have to happen to be going through Brussels.

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Speaker 3: We're going to put a link to it in our

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Speaker 3: show notes.

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Speaker 1: Well, let's discuss the Bank of England rate decision today.

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Speaker 1: After the slowdown and inflation in November, Guilty Hals have

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Speaker 1: dropped across the curve of Bloomberg's chief UK economist Dan

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Speaker 1: Hanson has been telling us what to expect from the

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Speaker 1: Bank of England today.

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Speaker 7: So I think it's it's pretty nailed on that they're

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Speaker 7: going to cut interest rates. We've obviously had a lot

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Speaker 7: of data this week, and I think the backdrop for

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Speaker 7: this decision is what Andrew Bailey said at the November decision,

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Speaker 7: which is that he was looking for more evidence that

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Speaker 7: the disinflation trend in the economy was on the right

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Speaker 7: track and inflation was going to come down. And I

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Speaker 7: think we've had that this week. We've had the unemployment

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Speaker 7: rate going up way to grow slowing, and we've obviously

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Speaker 7: had inflation slowings and expected as well. So you take

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Speaker 7: those three things together and I think the cut is

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Speaker 7: pretty much nailed on. Where are the uncertainties about this, Well,

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Speaker 7: the first is how many votes do we get for

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Speaker 7: a cut. Is it just Andrew Bailey that swings from

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Speaker 7: being the voter that goes from a hold in November

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Speaker 7: to a cut in December, or do we get more

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Speaker 7: of the hawkish camp on the NPC moving across. And

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Speaker 7: the second thing is around how they characterize their view

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Speaker 7: of where things will be going forward. So that's the guidance.

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Speaker 7: So you know, do they sit with gradual cuts. I

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Speaker 7: think they probably will, but they're the tea things to

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Speaker 7: look at, and they're the two uncertainties.

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Speaker 1: I think, what sort of trajectory do we have from

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Speaker 1: the data running up to this point now in terms

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Speaker 1: of the slowdown and inflation and weight growth. What does

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Speaker 1: that indicate at least about where the monk could go

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Speaker 1: next year. That's an interesting one because you have what

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Speaker 1: they'll have to take accounts of as well when it

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Speaker 1: comes at least to inflation is what the chances are

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Speaker 1: announced in budget and that means inflation though the policies

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Speaker 1: announced in the budget will mean that inflation drops quite

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Speaker 1: sharply lot next year.

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Speaker 3: Headline inflation.

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Speaker 7: We think by April you could be pretty close to

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Speaker 7: two percent on a headline basis, and obviously that's the

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Speaker 7: Bank of England's target, so clearly good news. I think

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Speaker 7: what the Bank's going to be focused on though is

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Speaker 7: what you mentioned there, which is the path of pay growth.

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Speaker 7: We've come down below four percent, which is obviously if

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Speaker 7: you're an inflation targeting central bank, good news less good

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Speaker 7: news if you're a if you're a household or someone

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Speaker 7: in the labor force, and we think over the course

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Speaker 7: of next year, pay growth should should come down further

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Speaker 7: to around three percent, which is the level the Bank

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Speaker 7: of England needs it to be at for inflation to

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Speaker 7: consistently hit two percent. I think the challenge to that

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Speaker 7: argument is that if you look at forward looking indicators,

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Speaker 7: they seem to be bottoming out at about for pay growth,

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Speaker 7: this is, they seem to be bottoming out at about

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Speaker 7: three three and a half three and a half to

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Speaker 7: four percent, So there is a question mark about whether

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Speaker 7: we get that final push to that level. And then

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Speaker 7: to go to answer your question about rates, I think

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Speaker 7: there's room for at least one more rate cut next year.

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Speaker 7: That's our baseline, so that's the three and a half percent,

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Speaker 7: But I think rates ending the year next year somewhere

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Speaker 7: between three and three and a half percent is a

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Speaker 7: very reasonable expectation. I think you'd have to see the

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Speaker 7: economy we can quite substantially for them to go below

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Speaker 7: that level.

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Speaker 3: With taxes here in the UK going up and the

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Speaker 3: labor market, as you have said, clearly slowing down. Is

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Speaker 3: this likely interest rate cut from the Bank of England

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Speaker 3: a gift for the Prime Minister kist Arma and the

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Speaker 3: Chancellor Rachel Reeves. How should we see it if we

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Speaker 3: mix in some politics to your economic analysis.

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Speaker 7: Yeah, I mean the obviously, if you're going to be

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Speaker 7: you know, if you're if you're in the government, you're

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Speaker 7: going to be banging the drum about this and the

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Speaker 7: fact that you've sort of facilitated this happening. If you're

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Speaker 7: sort of being a sort of cold and dry economistic

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Speaker 7: economic analysis, I think you'd say that the Bank of

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Speaker 7: England could have cut faster this year had the policies

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Speaker 7: in the budget in twenty twenty four not been Many

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Speaker 7: of the policies in the budget in twenty twenty four

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Speaker 7: made inflation run hotter this year than many were expecting.

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Speaker 7: So look, I think if I'm going to mix the

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Speaker 7: two things, it's obviously it's obviously a gift for the Chancellor,

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Speaker 7: for the government.

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Speaker 3: You know.

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Speaker 7: The hope is, of course, is that the bank hasn't

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Speaker 7: sat on the economy too hard and it then ends

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Speaker 7: up having to play catch up because the bank it

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Speaker 7: will go from quite quickly go from the bank, you know,

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Speaker 7: handing out Christmas gifts to the government blaming the Bank

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Speaker 7: of England for generating a downturn in the economy as

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Speaker 7: it was trying to bring inflation back to target. But

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Speaker 7: you know, there's no doubt this year, at least the

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Speaker 7: bank's job has been made harder by the government's actions.

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Speaker 3: That's totally if.

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Speaker 1: UK economist Dan Hansen and the Bank of England announced

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Speaker 1: that decision at midday today.

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Speaker 3: Stay with us.

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Speaker 1: More from Bloomberg Daybreak Europe coming up after this Now.

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Speaker 3: Banks are teaming up with that private credit to f

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Speaker 3: and ans commercial real estate deals in Europe, but the

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Speaker 3: increasingly popular form of financing is raising concerns that creditor

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Speaker 3: protections are being eroded. Joining us now is our European

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Speaker 3: commercial real estate reported Natasha Vos. Good to see you, Natasha.

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Speaker 3: This kind of financing, it's known as back leverage. Just

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Speaker 3: explain how it works and why it's become so popular,

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Speaker 3: Yeah sure, I mean.

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Speaker 8: Put simply, back leverage is basically a situation where a

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Speaker 8: bank lends to a debt fund, which then lends to

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Speaker 8: an underlying borer who in this case owns real estate.

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Speaker 8: And it's become quite popular in the UK and in Europe,

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Speaker 8: following on from the US because post financial crisis, it

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Speaker 8: became more expensive for banks to lend to commercial real estate.

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Speaker 8: But what this allows them to do is to lend

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Speaker 8: to a commercial real estate classified as a securitization, and

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Speaker 8: then they benefit from lower capital charges. And then it's

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Speaker 8: increased among the debt funds because for them it enables

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Speaker 8: them to compete more on loan pricing while also achieving

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Speaker 8: their returns.

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Speaker 1: So how has back leverage then changed the market?

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Speaker 8: Yeah, I mean it's become more competitive in both markets.

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Speaker 8: So the back leverage market itself has gotten more competitive

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Speaker 8: as more and more banks have started to lend this way.

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Speaker 8: But then also for the underlying borrowers, what allows them

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Speaker 8: to do is to lend more because they've got more

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Speaker 8: firepower in their funds while also having potentially lower pricing

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Speaker 8: and making the same returns. And that's so for the

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Speaker 8: underlying borrowers in many ways, there's good news. You know,

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Speaker 8: there's more liquidity.

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Speaker 3: But then perhaps also that raises some concerns about the

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Speaker 3: kind of increased use of this. What are the ramifications

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Speaker 3: what have you been reporting on?

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Speaker 8: Yeah, and I mean in theory, it is a more

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Speaker 8: secure form of lending, at least for the banks because

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Speaker 8: they're in a more senior position, you know, so their

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Speaker 8: last loss. But then one of the what's on of

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Speaker 8: the concerns have been that the increase in liquidity, the

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Speaker 8: increased competition, because there are relatively few deals to finance

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Speaker 8: and debt re estate debt in the moment, that increased

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Speaker 8: liquidity and competition could then lead banks to drop their

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Speaker 8: underwriting standards for the back leverage, and also for the

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Speaker 8: debt funds to drop their underwriting standards, which in good

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Speaker 8: times might not necessarily be a problem, but you know,

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Speaker 8: if there's a market shock, you could see the consequences

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Speaker 8: further down the line.

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Speaker 1: And this is something that's gotten some of the biggest

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Speaker 1: names in banking in Europe involved in it as well.

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Speaker 1: Can you give us some examples of who has been

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Speaker 1: using this sort of leverage and perhaps some of the

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Speaker 1: projects they've been using it for.

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Speaker 3: Yeah, sure.

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Speaker 8: So, for example, we reported that Gold and Sachs had

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Speaker 8: provided back leverage to PGM to finance the other house

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Speaker 8: in Covent Garden. Another one is Netwest providing Cheney with

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Speaker 8: back leverage for an office development just in the city.

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Speaker 8: It's seventy five London walls. It's the former Deutsche Bank headquarters.

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Speaker 8: I mean it's become pretty popular for banks and also

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Speaker 8: for debt funds.

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Speaker 1: This is Bloomberg Daybreak Europe, your morning brief on the

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