Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Yeah.
Speaker 2: I'm joined in Westminster by Michael Saunders, former Bank England
Speaker 2: policymaker and now a senior advisor at Oxford Economics. Lovely
Speaker 2: to have you back, Michael. We had that inflation reading
Speaker 2: yesterday two point three percent. Richie Seene access inflation is
Speaker 2: back to normal. The financial markets reckon it's so sticky
Speaker 2: a June rate cut is off the table.
Speaker 1: Who's right? I think a June rate cut is looking
Speaker 1: very unlikely after the inflation figures. The decision to call
Speaker 1: the election won't really alter that, other than in a
Speaker 1: very limited extent. The NPC would be especially reluctant to
Speaker 1: do a surprise rate change during an election campaign. I
Speaker 1: think that they would prefer not to do anything which,
Speaker 1: by their own actions would be a cause for the utility.
Speaker 1: Look in practice, a June rate cut is probably ruled
Speaker 1: off by the inflation figure.
Speaker 2: So will there be any worry on the NPC about
Speaker 2: looking as if they're giving a helping hand to the government.
Speaker 1: I think it's rather that with the inflation figures come
Speaker 1: out higher than expected, they don't have the evidence to
Speaker 1: cut rays for now. But also, you know, there's no
Speaker 1: great rush. They can afford to wait for a bit
Speaker 1: more data to come through, and as I said, they
Speaker 1: themselves wouldn't want to be a cause for volatility.
Speaker 2: Do you expect more members of the Military Policy Committee
Speaker 2: or former colleagues to join Swatty, Dinger and Dave rams
Speaker 2: And and voting to cut in June?
Speaker 1: Possibly? But actually I think unless the May inflation figures,
Speaker 1: which hall still come out before the June meeting, are
Speaker 1: especially low, I think it is more likely that they
Speaker 1: would wait until August that the NPC has set out
Speaker 1: the conditions for lower interest rates, that pay and prices
Speaker 1: had to come down more or less in line with
Speaker 1: the forecast in the May Monetary Policy Report. So far
Speaker 1: the news has been a little bit higher than they're expected,
Speaker 1: So it's really the evidence which you would need to
Speaker 1: see to change before the NPC members votes would also
Speaker 1: change their.
Speaker 2: Services inflation particularly sticky. What would be a healthy level
Speaker 2: to start to cut.
Speaker 1: I think it's fair to cut rates gradually before pay
Speaker 1: growth and services inflation are back to target consistent rates.
Speaker 1: So a target consistent rate of pay growth would be
Speaker 1: about three and a half. Services inflation probably about the
Speaker 1: same kind of pace. As long as you're reasonably sure
Speaker 1: you're on a path to that, then you can start
Speaker 1: to cut rays gradually. Conscious that the lags on Mountree
Speaker 1: policy are quite long and therefore if you wait until
Speaker 1: everything is sorted, you've probably left it too late.
Speaker 2: And just thinking again about the election, does kir Starmer
Speaker 2: if he wins, have the fiscal room to grow the
Speaker 2: economy significantly in five.
Speaker 1: Years, Well, this is going to be the big challenge
Speaker 1: for whoever's in government for the next few years. The
Speaker 1: UK has low potential growth, which means the trend growth
Speaker 1: of tax revenues is quite low. There's strong pressures for
Speaker 1: higher public spending from the aging population and increase need
Speaker 1: for defense spending. And we've got to get the public
Speaker 1: finances back onto a sustainable path. Now, trying to reconcile
Speaker 1: those three is going to be a difficult task for
Speaker 1: whoever's in government. The best way to do it is
Speaker 1: to do measures which can raise the economy's potential growth.
Speaker 1: Then tax revenues will be stronger, the public finances will improve,
Speaker 1: and you'll have more money to spend on public services.
Speaker 2: Of course, growth is something that both parties agree we need.
Speaker 2: We haven't had the election manifestos yet. But knowing what
Speaker 2: we know so far about Labour's plans, do you think
Speaker 2: that financial markets will be worried by their a new
Speaker 2: change of gomnum? So?
Speaker 1: I think financial markets and international businesses will be extremely
Speaker 1: relaxed about the prospect of a change to a Labor government.
Speaker 1: Now that's partly because Labor themselves are viewed as a
Speaker 1: moderate centrist party. It's also because the Conservatives have perhaps
Speaker 1: lost their previous claim to be the party of economic
Speaker 1: competence after the chaotic period of the last few years.
Speaker 1: We've had you know, five prime ministers, seven chancellors. Honestly,
Speaker 1: I've lost track of the numbers of business secret faries,
Speaker 1: housing ministers and industrial strategies. So you know, I think
Speaker 1: probably investors would perhaps breathe a sigh of relief.
Speaker 2: And I mean you rub shoulders with these business leaders
Speaker 2: all the time, they're your clients. Do you think that
Speaker 2: Labor has now become the party of business.
Speaker 1: To an extent? Yes? I think yes, I think that
Speaker 1: they've made quite a mark shift in the last few years.
Speaker 1: But it's also, as I said, that the Conservatives have
Speaker 1: forgone their previous claim to be the party of business.
Speaker 1: Of economic competence and.
Speaker 2: Hasn't recovered that.
Speaker 1: I don't think really. No GDP per head in the UK,
Speaker 1: which is a key drive of living standards, is still
Speaker 1: lower than it was in twenty nineteen. Now, I mean
Speaker 1: I wouldn't call that a successful economic strategy.
Speaker 2: Okay, what the one economic policy then that you would
Speaker 2: advise any party to put in place that would make
Speaker 2: a significant difference in their manifesto.
Speaker 1: So I'm going to cheek slightly and I'm going to
Speaker 1: go for three closer trade links with Europe, hire public
Speaker 1: investment and build more houses.
Speaker 2: And the housing policy of care Starmer. Do you think
Speaker 2: that that will or or the Conservative Party do you
Speaker 2: think that it will make much of a movement in
Speaker 2: the housing market.
Speaker 1: Well, the key thing is to make it easier for
Speaker 1: people to buy a house and thereby move to where
Speaker 1: the jobs are, and that's improvement in labor mobility would
Speaker 1: help businesses to hire, to invest and improve the economy's
Speaker 1: potential growth rate. Now, the Conservatives have at times talked
Speaker 1: of higher house building, but actual house building has been
Speaker 1: really low. So a government which puts higher house building
Speaker 1: as one of its key aims, I think that would
Speaker 1: help to improve the economy's long run.
Speaker 2: Potential, would it lower prices there?
Speaker 1: It would lower prices, but the mechanism is to make
Speaker 1: it easier for people to move to seek job opportunities,
Speaker 1: and that helps firms to hire, helps businesses to invest,
Speaker 1: allows new opportunities to expand.
Speaker 2: Okay, Michael Saunders, Economic advisor at Oxford Economics, with a
Speaker 2: little view on what we might be able to expect
Speaker 2: from the election manifestos from both parties, will wait for
Speaker 2: them to come up