Speaker 1: Dave's I'm bringing my kids to New York actually for Halloween.
Speaker 1: Oh are you as cities always already gearing up for it?
Speaker 1: I can see that who you're going to dress up as?
Speaker 1: Let's trust ultimate Halloween costume? The markets in the first
Speaker 1: ten days in office, Zombie Liz. I'm Franci lackwhere here
Speaker 1: in the London studio and I'm David Merritt, And I'm
Speaker 1: in the New York studio. And we are making today
Speaker 1: a special bonus edition of our in the City podcast
Speaker 1: because the news just has not stopped over the weekend
Speaker 1: from the Conservative Party conference, the termoil on the markets.
Speaker 1: We thought we had to bring in the experts to
Speaker 1: really unpack it this morning. So we've got Ben Sills,
Speaker 1: who runs our government coverage in the whole of Europe,
Speaker 1: on the line. But there's so much going on. So
Speaker 1: the government abandoning its plan to bolish the top rate
Speaker 1: of income tax. I don't know whether the u turn
Speaker 1: of course, coming after severe political pressure, of course from
Speaker 1: her own Tory MPs, means that credibility is back for
Speaker 1: the government or not so much, not so much, I
Speaker 1: don't think so. This is a key plank of liszt
Speaker 1: trust is economic policy. She spent the last nine days
Speaker 1: defending it. She was on the TV yesterday defending it again,
Speaker 1: and then to suddenly come out with a statement from
Speaker 1: quasi quiet hang this morning. Dropping that policy makes her
Speaker 1: look like she really doesn't doesn't properly have a proper
Speaker 1: grasp of how much control she has of her party fundamentally.
Speaker 1: I think, you know, she and her team must have
Speaker 1: been trying to assess whether they could they could hold
Speaker 1: the line in their war gaming yesterday. And the fact
Speaker 1: that they decided they would send her out to defend
Speaker 1: it yesterday and then they had to drop that policy
Speaker 1: this morning speaks of a number ten operation that's really
Speaker 1: not in control of the situation at all. I mean,
Speaker 1: it's it's a remarkable ben, isn't it. And the you know,
Speaker 1: the markets have reacted with a little bit of a
Speaker 1: bounce in the in the pound, a bit of recovery
Speaker 1: for interest rates, but you know, it's not enough really
Speaker 1: to put the government out of the woods. Are they?
Speaker 1: People still talking about the Bank of England are propping
Speaker 1: up the bond market here and all the commentary I'm
Speaker 1: reading from Anus this morning saying well, you know, it shows,
Speaker 1: as you said, it shows the government to be malleable,
Speaker 1: she's not holding firm. But also there's just still the
Speaker 1: bigger fiscal picture for Britain still. It's very precarious, doesn't it. Yeah,
Speaker 1: this is only a very small part of the fiscal
Speaker 1: package that she knows. This is two billion from billion
Speaker 1: pound package which d I m F warned was going
Speaker 1: to add to inflation pressures and complicate the life of
Speaker 1: the Bank of England as it tries to tackle across
Speaker 1: the living crisis. So in fundamental term, this is really
Speaker 1: just to kind of drop in the ocean. What it
Speaker 1: does do is show that the government is listening after
Speaker 1: I mean, after a lot of time and not listening right,
Speaker 1: I mean it took a while to get there, but
Speaker 1: also been listening to who I mean, are they listening
Speaker 1: to the polls saying that labor is doing so much better,
Speaker 1: they listened to the markets or are they just worried
Speaker 1: that this wouldn't have gotten through Parliament. I think the
Speaker 1: biggest thing that changed from Sunday morning to Monday morning
Speaker 1: was the number of senior Tories who were coming out
Speaker 1: and explicitly saying they weren't going to back the policy,
Speaker 1: so that so trust was facing like a serious rebellion
Speaker 1: among her MPs, she would have got this measurestry parliament, right,
Speaker 1: I mean, there was going to be a big enough rebellions,
Speaker 1: do you think to effectively vote down her first budget? Yeah?
Speaker 1: And what and what's more is that a budget is
Speaker 1: effectively a confident thought on the government. And so if
Speaker 1: she had lost that budget vote, the process of perhaps
Speaker 1: during a line under her government would have accelerated very quickly.
Speaker 1: And even with today's you turn, there are still a
Speaker 1: lot of questions about how long she can actually survive,
Speaker 1: I mean a month into her administration. But I mean,
Speaker 1: can you can you recall I don't think I can
Speaker 1: a kind of more tempestuous a kind of work a
Speaker 1: rockier start for a prime minister, either in Britain actually
Speaker 1: or anywhere. What do we think about it? Well, it's
Speaker 1: difficult to imagine. I can't remember a bigger unforced error
Speaker 1: by any government that certainly that I've been covering. And
Speaker 1: the fact that she managed to make this error in
Speaker 1: her first month in office is really quite remarkable. I
Speaker 1: think it speaks to an extremely kind of dogmatic approach
Speaker 1: to politics, which is not really taking much account of
Speaker 1: what the political weather is like. And I think that,
Speaker 1: you know, wherever we go from here, those question marks
Speaker 1: about her leadership shops are not going to go away.
Speaker 1: I mean, the blame game has started obviously, hasn't think
Speaker 1: it was very interesting to hear her effectively blame the
Speaker 1: its left for pushing forward this tax cart without consulting anyone.
Speaker 1: That was remarkable itself. Do you think quart can can
Speaker 1: can stay assuming that let's Trust stays as Prime Minister
Speaker 1: for now, do we think that his time in as
Speaker 1: chancellor might be might be limited? I would tend to
Speaker 1: see Quarting as arguably a little bit stronger than Trust.
Speaker 1: I think that, and that's just purely on the basis
Speaker 1: of the competence of their public statements. Trust had that
Speaker 1: very difficult round of radio interviews on Thursday morning, when
Speaker 1: I think it was Angela Rayner from the Labor Party
Speaker 1: commented that she had broken her long painful silence with
Speaker 1: a series of short, painful silences. That's how style, isn't it?
Speaker 1: And these people exactly so, I think, you know, in
Speaker 1: a sense, maybe Trust needs Quarting at the moment. I do, yeah, Well, no,
Speaker 1: I think I think that she needs him as an ally.
Speaker 1: She doesn't. I mean they co authored the book together.
Speaker 1: They're sort of political bad fellows. But it seems like
Speaker 1: the relationship is souring. There, isn't it already? I mean,
Speaker 1: in the limelight of all of this chaos, she she
Speaker 1: has very few cards to play, and at the point
Speaker 1: when the ship is definitively going down, I would expect
Speaker 1: her to throw him overboard in a desperate and futile
Speaker 1: attempt to save the ship. But until we get there,
Speaker 1: I think she probably will be clinging onto him. Ben.
Speaker 1: Thank you so much. Ben stills there from our government
Speaker 1: be so we're delighted to be joined for the special
Speaker 1: episode of the podcast. But Andrew sentence, he's a former
Speaker 1: MPC member. Andrew, you wrote this brilliant piece Action at
Speaker 1: the time, saying the crisis has been brewing for some
Speaker 1: time before Quartank pulled the trigger. As a former MPC member,
Speaker 1: how did you live through the last ten days? I
Speaker 1: don't think it's been a very auspicious period for UK
Speaker 1: and I'm policy and in my article in The Times,
Speaker 1: I said that you know, it ranks with three previous
Speaker 1: episodes that we've had which have been described as economic
Speaker 1: crisis in the UK, the first with the IMF crisis
Speaker 1: in six secondly the year M crisis and then the
Speaker 1: global financial crisis. And I think this crisis has been
Speaker 1: I suppose self induced by the government in terms of
Speaker 1: their mishandling of their economic policy announcements, particularly Class equantings budget.
Speaker 1: And what exactly did they mishandle Was it just the
Speaker 1: wrong policy? Were they completely unprepared to govern? Well, I
Speaker 1: think it's a combination of things. I think first of all,
Speaker 1: they rushed at this budget statement, which I don't think
Speaker 1: was necessary, but they decided that they needed to do
Speaker 1: something quickly and that's something that Let's Trust has reiterated
Speaker 1: over the last few days. But secondly, they didn't produce
Speaker 1: any forecasts alongside their budget statement. That's quite a bad
Speaker 1: thing for financial markets and people who are looking to
Speaker 1: make a medium term judgment. And the package itself was
Speaker 1: very large by the mid twenties. The estimate in the
Speaker 1: budget statement was that it would be forty five billion giveaway.
Speaker 1: Now that's being reduced with the latest statement of the
Speaker 1: the suspension of the forty five percent to tax reduction,
Speaker 1: but even so it's still a very big package. And
Speaker 1: Andrew when you write, look at the greater had been
Speaker 1: brewing for some time before the Chanceller pulled the trigger.
Speaker 1: Maybe what's the way forward for him now? Well, I
Speaker 1: think being the chance of the check that means you
Speaker 1: have to be the guardian of the stability of the economy.
Speaker 1: And I think the new government has got ahead of
Speaker 1: itself and it seems to be thinking that it's got
Speaker 1: some sort of magic wand to create economic growth. Now,
Speaker 1: those of us who have been observing the UK economy
Speaker 1: for many decades would say, you can't way for magic
Speaker 1: wand to create economic growth in the short term. If
Speaker 1: you can do something positive, you can maybe help to
Speaker 1: create better economic growth over a period of five to
Speaker 1: ten years um, but that you know is a long period.
Speaker 1: And the Chancellor and the Prime Minister seemed to think
Speaker 1: that they can make a way for magic wand and
Speaker 1: create better growth over want to two years and that's
Speaker 1: totally unrealistic. But so what is realistic given the U
Speaker 1: turn from the government to the Bank of England now
Speaker 1: pull its own new turn on guild sales. Well, I
Speaker 1: think the Bank of England should stick to the job
Speaker 1: that it's meant to do, which is to keep on
Speaker 1: top of inflation. I mean, in the background to all this,
Speaker 1: we've got a massive inflation problem. Inflation is nearly ten
Speaker 1: percent in the UK and could still get higher. Whether
Speaker 1: it's going to be damp and down by the government's
Speaker 1: energy price package remains to be seen. So we've still
Speaker 1: got a major inflation problem and that should be the
Speaker 1: main issue for the Bank of England. And I think
Speaker 1: the expectation is that the Bank of England will increase
Speaker 1: interest rates quite substantially at its next meeting, possibly by
Speaker 1: seventy five to a hundred basis points. Market expectations even
Speaker 1: beyond that at the moment. But actually look if you
Speaker 1: look at q T right, and this is something that
Speaker 1: market participants are watching very closely. Given last week's market meltdown,
Speaker 1: which prompted the announcement of a pause of QT until
Speaker 1: the end of the month, is a further delay now
Speaker 1: the most sensible option. We'll have to see how much
Speaker 1: these special operations that the Bank of England as announced,
Speaker 1: how long they will take to work through. I think
Speaker 1: though they have announced these measures, they've actually not had
Speaker 1: to spend as much money in supporting the bond markets
Speaker 1: as they originally said, So we just have to see,
Speaker 1: but I think the Bank of England shouldn't be thrown
Speaker 1: too far off course from its general policy of combating inflation,
Speaker 1: which has Ultimately it's probably as I'm very objective as
Speaker 1: the Bank of the country's inflation watchdog, and that's what
Speaker 1: it should be doing. Andrew, would you call the you
Speaker 1: turn from the government humiliating and what does that mean
Speaker 1: for austerity coming our way? Well, I think any you
Speaker 1: turn from a government, you know, when it's been in
Speaker 1: office for less than a month, is probably humiliating. But
Speaker 1: they can recover from that if they learn the lessons.
Speaker 1: And I think we've seen in previous economic crisis that
Speaker 1: the UK has faced that economic policy has to be
Speaker 1: adjusted and so they may not be able to stick
Speaker 1: with the same degree of tax reductions that they've committed
Speaker 1: themselves to. And also there's a there's a big issue
Speaker 1: about whether to keep borrowing on track. They're going to
Speaker 1: have to be quite severe with public expenditure. So I
Speaker 1: think there's some very big challenges for the current List
Speaker 1: trust government down the line, and we'll have to see
Speaker 1: how they respond. Andrew sentence, Thank you so much for
Speaker 1: joining us, Thanks for listening to this week's in the City.
Speaker 1: We'll be back next week and in the meantime. If
Speaker 1: you like our show, please head over to Apple Podcasts
Speaker 1: or wherever you listen to podcasts, rate review, and subscribe. Also,
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Speaker 1: read out with a Legra Stratton on Bloomberg dot com
Speaker 1: Slash Newsletters, or check out the show notes for a link.
Speaker 1: This episode was hosted by me Francine Laqua and in
Speaker 1: part by My Lovely co host David Merritt. It was
Speaker 1: produced by SUMMERSAIDI Special thanks to Ben Sills and Andrew
Speaker 1: Sentence