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Speaker 1: This is the Bloomberg Daybreak podcast, available every morning on Apple,

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Speaker 1: Spotify or wherever you listen. It's Friday, the twelfth of

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Speaker 1: April here in London.

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Speaker 2: I'm Caroline Hitki and I'm Stephen Carroll. Coming up today.

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Speaker 2: Shares in the Wall Street Giant Morgan Stanley fall on

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Speaker 2: reports of multiple investigations into its US wealthy units.

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Speaker 1: Global rates repricing puts the European Central Bank contract to

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Speaker 1: cut interest rates before the FED and the Bank of England.

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Speaker 2: Plus putting big tech on notice. The UK's Competition watchdog

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Speaker 2: says it's watching AI investments by Apple, Alphabet and Amazon.

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Speaker 1: Let's start with a roundup of our top stories. Morgan

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Speaker 1: Stanley's shares have fallen by more than five percent or

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Speaker 1: reports that a number of US regulators are scrutinizing the

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Speaker 1: firm's efforts to prevent potential money laundering by wealthy clients.

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Speaker 1: The Wall Street Journal says these Securities and Exchange Commission,

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Speaker 1: the Officer of the Control of the Currency and other

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Speaker 1: Treasury Department offices are looking into this issue, and Morgan

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Speaker 1: Stanley spokesperson a client to comment on the story. Bloomberg

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Speaker 1: Intelligences Elliot Stein says the investigation has been in the

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Speaker 1: works for some time.

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Speaker 3: We already knew from November that the Federal Reserve was

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Speaker 3: investigating more instantly on this very issue. This story suggests

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Speaker 3: that the probe is a little broader and other agencies

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Speaker 3: are looking to including the SEC. The ROCC inserts, you

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Speaker 3: know it's more than just a FED rate now.

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Speaker 1: Elliott Stein says the probes come as the US government

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Speaker 1: ramps up pressure on the industry to tighten money laundering

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Speaker 1: controls as authorities make greater use of sanctions.

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Speaker 2: The European Center Bank Policy measor Mark and kazakhs says

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Speaker 2: the ECB is on track to start cutting interest rates

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Speaker 2: in June. He was speaking after the Central Bank held

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Speaker 2: interest rates on Thursday. Kazaks says if nothing really changes

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Speaker 2: on the inflation outlook, then the ECB will move at

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Speaker 2: its next meeting. Speaking after yesterday's decision, President Christine Laguard

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Speaker 2: insisted the Central Bank is not pre committing to a

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Speaker 2: rate path.

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Speaker 4: We are determined to ensure that inflation returns to our

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Speaker 4: two percent medium term target in a timely manner. We

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Speaker 4: consider that the key ECB interest rates are at levels

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Speaker 4: that are making a substantial contribution to the ongoing disinflation process.

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Speaker 4: Our future decisions will ensure that our policy rate will

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Speaker 4: stay sufficiently restrictive for as long as necessary.

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Speaker 2: Christine Leguard also reiterated the ECB doesn't take its queue

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Speaker 2: from the Federal Reserve, although she had concedes that quote

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Speaker 2: anything that happens matters to us. While the Greek Central

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Speaker 2: Bank Governor Janis Joanares has said now is the time

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Speaker 2: to diverge, as the situations in the Euro Area and

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Speaker 2: the US are completely different.

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Speaker 1: Well, in the United States, there is increasing uncertainty about

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Speaker 1: when the Federal Reserve will cut interest rates. The Boston

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Speaker 1: Fed President Susan Collins says that rat cars may need

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Speaker 1: to come later than previously thought. Here's what she told

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Speaker 1: the Economic Club of New York or.

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Speaker 5: Recent data had not materially changed my outlook, but they

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Speaker 5: do highlight uncertainties related to timing and the need for patients.

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Speaker 5: Recognizing that disinflation may continue to be uneven, and this

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Speaker 5: also implies that less easing of policy this year than

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Speaker 5: previously thought may be warranted.

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Speaker 1: Susan Collins she does not vote on the Monetary Policy

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Speaker 1: Committee this year, but her comments come as if vests

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Speaker 1: become increasingly hawkish on the prospects of FED cuts this year,

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Speaker 1: Traders now expect the center band to reduce interest rates

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Speaker 1: just twice in twenty twenty four, starting in September.

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Speaker 2: Just some breaking news this hour, the UK economy grew

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Speaker 2: byzo point one percent in the month of February, pointing

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Speaker 2: to the country emerging from recession in the first quarter.

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Speaker 2: It follows growth for January being revised upwards to zero

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Speaker 2: point three percent. After long period of stagnation over the

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Speaker 2: past two years, Boomberg Economics sees the outlook brightening in

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Speaker 2: the UK. High frequency indicators like PMI and retail sales

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Speaker 2: suggest momentum has gathered pace in the beginning of this year.

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Speaker 1: The form of Federal Reserve Chair Ben Bonanki will deliver

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Speaker 1: his recommendations on the Bank of England's forecasting process today.

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Speaker 1: Bloomberg understands that Bananki will suggest the BANG adopt a

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Speaker 1: flexible set of scenarios. His report was commissioned last July

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Speaker 1: after the Bank of England failed to predict inflation would

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Speaker 1: hit a four decade high of more than eleven percent.

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Speaker 1: But Bloomberg Economics, Suzanna and Rode says that the bank

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Speaker 1: wasn't alone in that failure.

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Speaker 6: We look at the forecast record of the BUECB and

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Speaker 6: the FED, and we actually see that there's nothing particularly

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Speaker 6: wrong with the BWE. The scale of the forecast errors

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Speaker 6: was very similar across the three central banks and also

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Speaker 6: close to our own forecast errors in the private sector.

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Speaker 6: So what we think that the report will focus on,

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Speaker 6: it's not so much on the ways to improve the forecast,

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Speaker 6: because forecast errors are sort of inevitable in the area

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Speaker 6: where we're in, but more on the communication of the BWE,

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Speaker 6: because the BUE, I think one of the challenges of

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Speaker 6: the Jewish communication is that it doesn't really give markets

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Speaker 6: a say about what it thinks it's the right path

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Speaker 6: for rates over the long term.

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Speaker 1: Anna and dar Day and the rest of the Bloomberg

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Speaker 1: Economics team will be here to offer reaction to that

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Speaker 1: report when it's released at mid date London time.

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Speaker 2: Today, oil prices are continuing to rise as Israel braces

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Speaker 2: for a potential attack from Iran. Brent Krude is trading

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Speaker 2: over ninety dollars a barrel after closing lower in the

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Speaker 2: previous session. The news comes as the US and its

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Speaker 2: Allies are anticipating an attack on Israel in response to

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Speaker 2: a strike on Iran's diplomatic compound in Syria last week. Elsewhere,

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Speaker 2: Russian attacks on Ukrainian energy infrastructure have also spurred bullish

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Speaker 2: activity in the oil options market. The International Energy Agency

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Speaker 2: will provide a snapshot of the market later today, giving

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Speaker 2: more insight into global balances.

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Speaker 1: Credit traders at Barclays and HSBC are making a market

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Speaker 1: for bets against the day of Thames Water, according to

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Speaker 1: people familiar with the matter, amid an escalating crisis at

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Speaker 1: the UK's largest water utility. Short interest on some of

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Speaker 1: Thames's bonds has surged in the past week as trade

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Speaker 1: is bet the company is headed for restructuring. Parent company,

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Speaker 1: Kember Water Holdings, defaulted last week after shareholders refused to

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Speaker 1: inject more capital into the business following a standoff with

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Speaker 1: the water regulator off What. Representatives for HSBC and Barcley's

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Speaker 1: declined to comment.

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Speaker 2: Big tech investments into AI are sparking scrutiny from the

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Speaker 2: UK's Competition and Markets Authority. The CMA says it has

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Speaker 2: real concerns about deals involving the technology. Bloombergs TEMA at

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Speaker 2: a Bio has the details.

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Speaker 7: Britain's antitrust watchdogs says it's uncovered an interconnected web of

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Speaker 7: partnerships and investments that could be allowing big firms to

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Speaker 7: shape the AI market in their own interest. The CMA

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Speaker 7: looked into deals around AI foundation models by tech giants

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Speaker 7: including Google, Apple and Microsoft. These firms have been pouring

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Speaker 7: money into some of the most promising AI startups globally.

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Speaker 7: The CMA says it will be watching development closely and

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Speaker 7: may use its existing powers to intervene or wait until

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Speaker 7: those are reinforced in the New Digital Markets Act, which

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Speaker 7: comes into force this summer. In London, to you add

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Speaker 7: a bio Bloomberg Radio.

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Speaker 8: Now on to the Bank of England.

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Speaker 2: The former Federal Reserve chair Ben Bernanki was asked last

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Speaker 2: July to lead a review of the BOEES forecasts after

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Speaker 2: the bank failed to predict inflation would hit a four

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Speaker 2: decade high of more than eleven percent and subsequently raised

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Speaker 2: interest rates to a fifteen year high of five and

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Speaker 2: a quarter percent. It's thought Bernanki will suggest the Bank

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Speaker 2: of England adopt a new innovation, a flexible set of scenarios,

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Speaker 2: in a bid to update its forecasting process and repair

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Speaker 2: its battered reputation. Joining us now to discuss as Michael Saunders,

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Speaker 2: former Bank of England policymaker and now a senior advisor

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Speaker 2: at Oxford Economics.

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Speaker 8: Michael, good morning to you.

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Speaker 2: I wanted to start by actually asking for your reaction

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Speaker 2: to the latest growth figures we've had out for the

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Speaker 2: UK point one percent growth in February, or a vision

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Speaker 2: upwards for the January figure as well. It looks like

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Speaker 2: we're moving out of that recession, yes.

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Speaker 9: But it was never much of a recession to start with,

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Speaker 9: was it?

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Speaker 10: A look at the big pictures, the UK economy has

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Speaker 10: been pretty flat since late twenty twenty two. My minor

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Speaker 10: dip in the second half of last year, very low

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Speaker 10: growth in the first half of this year, but it's

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Speaker 10: a pretty flat economy and I think that's going to.

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Speaker 9: Be the picture for much of the rest of this

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Speaker 9: year as well.

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Speaker 1: Okay, so the reaction to the GDP data then this morning,

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Speaker 1: perhaps we can get onto how the UK gets out

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Speaker 1: of that little later in our conversation, Michael, in terms

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Speaker 1: of the ben Banankee review that will come out at

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Speaker 1: twelve noon today, we know little about actually what is

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Speaker 1: going to emerge. Andrew Bailey Ben BANANKIV said nothing about

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Speaker 1: it really, but we expect from the Banankee Review to

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Speaker 1: see perhaps the idea of ditching the fan shot. So

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Speaker 1: this is the kind of long held method that the

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Speaker 1: Bank of England uses to present the probability distribution around

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Speaker 1: the Bank of England's inflation forecast, and that that could

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Speaker 1: be replaced by scenarios. Is that what you expect the

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Speaker 1: review to come up with and would that be a

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Speaker 1: good move in a more uncertain economic world.

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Speaker 10: Yes, it is one of the changes which I think

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Speaker 10: the review will propose, and it would be a good idea.

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Speaker 10: That the fan charts are an attempt to try to

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Speaker 10: convey the uncertainties around the central forecast.

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Speaker 9: The problem is that.

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Speaker 10: The fan charts are so wide by the end of

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Speaker 10: the forecast period two to three years ahead that they

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Speaker 10: really serve no purpose. They sort of say, well, anything

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Speaker 10: could happen that far ahead. I think the advantage of

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Speaker 10: scenarios allows the Bank of England to illustrate what might

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Speaker 10: happen to the economy and interest rates if some of

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Speaker 10: the key risks which the NPC talk about were to materialize.

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Speaker 10: Right now, you can imagine for exam, there might be

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Speaker 10: around the central forecast an upside scenario of perhaps sticky

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Speaker 10: paid growth growth, pay growth being higher than the NPC expects. Well,

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Speaker 10: that will probably be more persistent inflation for a period

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Speaker 10: and interest rates staying higher for longer. You can imagine

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Speaker 10: the downside scenario, perhaps one in which the economy is weaker,

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Speaker 10: slips back into recession. Maybe then inflation falls quicker and

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Speaker 10: interest rates come down quicker. To me, that's a much

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Speaker 10: more useful way to illustrate the uncertainty than just fan

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Speaker 10: chance of ever increasing width sits change, which I hope

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Speaker 10: he'll propose.

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Speaker 2: Is there a risk though that that makes the bank's

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Speaker 2: communication more complex and perhaps more difficult to read if

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Speaker 2: you think about the headlines that could be produced by

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Speaker 2: a particular downside scenario forecast and how that might affect

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Speaker 2: perceptions of the Bank of England.

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Speaker 9: Well, the NPC.

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Speaker 10: Always talk about risks around the central forecast in their

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Speaker 10: regular report. What they haven't done previously is to sort

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Speaker 10: of produce an illustrative path for what might happen if

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Speaker 10: those forecasts were to come through. Now, look, all forecasts,

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Speaker 10: all scenarios have the limitations that they may not cover

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Speaker 10: the actual shocks which occur. Right, you can imagine a

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Speaker 10: scenario in late twenty twenty one would not have included

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Speaker 10: Russia's invasion of Ukraine and the big surge of energy prices,

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Speaker 10: So in that sense, the scenarios wouldn't have covered all

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Speaker 10: of the risks which actually materialized. But perhaps in early

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Speaker 10: twenty twenty two, when that invasion was occurring, you might

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Speaker 10: have had a scenario which showed a much more persistent

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Speaker 10: and greater rise in energy prices than energy markets then implied,

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Speaker 10: and the resultants pressures on inflation, and that would have

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Speaker 10: been a useful device to illustrate, well, look, if this

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Speaker 10: risk comes through, then the economic outlook could have been

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Speaker 10: very different to what we expected now. Of course, if

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Speaker 10: people externally eat all these things as promises, then they're

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Speaker 10: going to say, well, you told us this was going

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Speaker 10: to happen.

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Speaker 9: And that's not what's happened. But provided you t beat them.

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Speaker 10: As forecasts based on current information and assumptions, and with

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Speaker 10: the inherent limitations of any forecasts, I think it's an

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Speaker 10: improvement on what we've had previously.

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Speaker 1: Okay, so potential improvement. Michael, we mentioned at the beginning

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Speaker 1: of the introduction the Bank of England's battered reputation, and

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Speaker 1: this is partly why the Banankie reviews come about. I

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Speaker 1: suppose do you think that BANANKI will be as lenient

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Speaker 1: on the Bank of England as supportive of the Bank

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Speaker 1: of England as some have talked about in terms of

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Speaker 1: the difficulties of the Bank of England's inflation forecasting being

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Speaker 1: basically no worse than others. That was what Andrew Bailey

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Speaker 1: has talked about that actually that surge in inflation very

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Speaker 1: few banks managed to predict.

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Speaker 10: Well.

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Speaker 1: Do you think that BANANKI will be as lenient on

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Speaker 1: the Bank of England?

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Speaker 10: Okay, I think it's fair to say that all central

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Speaker 10: banks missed the strong rise in inflation that we saw

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Speaker 10: over the last few years, all of the major ones,

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Speaker 10: and I think the Bankinger's record on that is really

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Speaker 10: no better or worse than the other.

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Speaker 9: Major central banks. Look.

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Speaker 10: I also think that you shouldn't think of a review

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Speaker 10: as being solely a response to forecast error. The Central

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Speaker 10: Bank of New Zealand does regular expert led external reviews

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Speaker 10: of its forecast process, its comms, and its policy decisions.

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Speaker 9: These reviews take place every five years or so.

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Speaker 10: As a regular thing, and I think for the Bank

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Speaker 10: of England and indeed other central banks, the idea of

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Speaker 10: having a regular, expert led external review will be a

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Speaker 10: very useful idea. You don't do it only when things

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Speaker 10: have gone wrong, but you just do it as a

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Speaker 10: regular process in order to try to ensure that the

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Speaker 10: Central Bank is keeping up with practice, learning the lessons

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Speaker 10: from its own experience, in the experience of other central banks.

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Speaker 10: The Banking has been publishing forecast for twenty five years.

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Speaker 10: They've tweaked things a bit along the way. We should

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Speaker 10: just view this review as a chance to learn the

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Speaker 10: lessons from that period and improve things accordingly.

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Speaker 2: I want to come back to the challenges currently facing

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Speaker 2: the Bank of England though as well. It's been a

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Speaker 2: big week of repricing of what markets are expecting from

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Speaker 2: central banks. Looking now at just two interest rate cuts

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Speaker 2: being priced in for the Bank of England this year,

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Speaker 2: does that sound right to you?

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Speaker 9: Personally?

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Speaker 10: I think they'll cut a little bit more than that.

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Speaker 10: I would be more in the camp of thinking that

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Speaker 10: they'll cut about three times, with a first cut in

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Speaker 10: the next few months, probably not May, more likely June,

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Speaker 10: conceivably August. There's a difference between the inflation paths in

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Speaker 10: Europe and the UK on one side and the US

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Speaker 10: on the other. In Europe and the UK, inflation is

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Speaker 10: returning quick target. In the UK will probably get back

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Speaker 10: to two percent inflation in the April figures, the figures

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Speaker 10: for this month, which will be published in the middle

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Speaker 10: of May. Inflation then probably is below the target in

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Speaker 10: the rest of the second quarter, en the d probably

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Speaker 10: for the rest of this year. And that's a slightly

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Speaker 10: different path to the US, where inflation is a little

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Speaker 10: stickier and settling a little bit further above target. Now

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Speaker 10: the FED it matters a little bit for the UK

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Speaker 10: in the sense that anything that matters around the world

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Speaker 10: matters to the UK because we're an open economy. But

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Speaker 10: the MPC are not slavishly following the FED. And if

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Speaker 10: the UK economic output outlook is different and more sluggish

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Speaker 10: economy fas to drop in inflation than in the US,

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Speaker 10: I think it's quite reasonable to expect the NPC will

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Speaker 10: cut a little earlier than the US.

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Speaker 9: I don't think interest.

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Speaker 10: Places in the UK will come rattling down very quickly,

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Speaker 10: but we're in a pretty restrictive stance at the moment. Moment,

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Speaker 10: there's an ongoing sizeable lagged effects of the previous tightening

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Speaker 10: as people with fixed rate mortgages have to reset, and

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Speaker 10: I think they can afford to ease back to a

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Speaker 10: somewhat less restrictive stance over the rest.

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Speaker 9: Of this year.

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Speaker 1: There are doubts though, certainly when it comes to the ECB,

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Speaker 1: and we saw Christine Laguard yesterday have to moderate her

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Speaker 1: language around that idea that the ECB could could move

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Speaker 1: and diverge significantly from the FED. I mean there is

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Speaker 1: that threat to the UK also that the UK can't

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Speaker 1: ignore the Federal Reserve.

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Speaker 10: No correct, So it's a balance between the NPC and

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Speaker 10: not slavishly following the FED, but nor do they ignore them.

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Speaker 10: It's a factor to take into account. Now, if you

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Speaker 10: want to make a channel under which the Federal Reserve's

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Speaker 10: behavior would matter a lot for the UK, it would

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Speaker 10: have to be through the exchange rate, right, so if

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Speaker 10: exchange differentials, so if interest rate differentials were to cause

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Speaker 10: the pound to weaken significantly, than that would limit the

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Speaker 10: NPC's room for action. But if that doesn't happen, because

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Speaker 10: the economies themselves one slightly divergent paths weaker growth, weaker

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Speaker 10: inflation in the UK, then it's reasonable to expect that

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Speaker 10: interest rates also would diverge slightly. I should stress I

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Speaker 10: think the FED will probably still be cutting interest rates

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Speaker 10: over the rest of this year. So if you like,

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Speaker 10: the broad direction of both central banks is the same,

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Speaker 10: it just may not be exactly the same timing.

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Speaker 2: Would those cuts if they come earlier as you're expecting,

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Speaker 2: help to boost that anemic growth outlook that you see

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Speaker 2: for the UK.

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Speaker 3: Not much?

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Speaker 10: And you know, one of the reasons for the MPC

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Speaker 10: to cut is that the munch policy lags in the

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Speaker 10: UK are much longer than they used to be because

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Speaker 10: of the widespread shifts of household mortgages from variable rate

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Speaker 10: debts to five year fixed which means that there's still

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Speaker 10: a sizable ongoing lag defects. The pre is tightening coming through.

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Speaker 10: If bank rate is unchanged at current levels, the average

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Speaker 10: interest rate on the stock of mortgage debt will continue

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Speaker 10: to rise all the way through this year all the

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Speaker 10: way through next year. This household's refinance on it from

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Speaker 10: expiring mortgages onto more expensive mortgages. So just to prevent

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Speaker 10: that ongoing tightening, you need to trim back the current

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Speaker 10: level of interest rates a little bit.

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Speaker 1: Are you concerned? It's all about the narrowness of the

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Speaker 1: impact of interest rate increases of speaking to ALBERTA. Gallow

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Speaker 1: yesterday see Andromedic Capital Management, and you know he was

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Speaker 1: saying that largely the interest rate increases only affect a

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Speaker 1: very small slice of the population. That's been quite a

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Speaker 1: deep concern.

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Speaker 10: Well, this is part of the way in which the

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Speaker 10: munt policy transmission process has changed in the UK. Fewer

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Speaker 10: households have a mortgage at all, and obviously the channel

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Speaker 10: from the banking and changing in rates onto household mortgage

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Speaker 10: payments used to be a powerful part of the monkey

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Speaker 10: policy transmission mechanism is less powerful now and it's slower

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Speaker 10: because households more households have fixed mortgage debt. That doesn't

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Speaker 10: mean that munket policy doesn't work, but it probably is

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Speaker 10: a bit less powerful and more slower acting than.

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Speaker 9: It used to be.

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Speaker 10: The NPC, I think, probably need to ensure that they

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Speaker 10: take that into account in their policy decisions. The risk

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Speaker 10: of delaying interest rate cuts until pay growth is back

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Speaker 10: to a target consistent pace is that then with the

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Speaker 10: slower pass through of easing, you would condemn the economy

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Speaker 10: to unnecessary period of weakness and end up with inflation

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Speaker 10: below target. So the NPC, i think, need to take

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Speaker 10: account to the fact that the science are that the

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Speaker 10: pay growth is slowing towards a target consistent pace and

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Speaker 10: the lagged effects of typing a still working through and

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Speaker 10: will be able to cut rates a little bit over

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Speaker 10: the US this year.

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Speaker 2: Another difficulty the Bank of England is facing this year

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Speaker 2: is the timing of the general election expected before the

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Speaker 2: end of the year and when interest rate.

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Speaker 8: Cuts will fall.

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Speaker 2: How much of a political risk is the election to

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Speaker 2: the Bank of England's outlook and how worried do they

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Speaker 2: need to be to be accused of being politicized and

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Speaker 2: when they decide to cast okay.

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Speaker 9: So for the NPC, this is just a nun issue.

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Speaker 9: The NPC will not be.

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Speaker 10: Influenced in the infant rate decisions by political factors or

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Speaker 10: the approach of the election or whatever the political cycle says.

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Speaker 9: So just disregard that it doesn't matter. For the NPC.

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Speaker 10: They will be steering by the path of the economy

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Speaker 10: and the inflation outlook political factors who really don't matter.

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Speaker 8: For this is Bloomberg Daybreak Europe.

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Speaker 2: You're morning brief on the stories making news from London

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