WEBVTT - Surveillance: U.K. Court Ruling Suggests Brexit Will Help Pound 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters. Investors have put 0:00:02.680 --> 0:00:07.000 their trust and independent registered investment advisors to the two 0:00:07.040 --> 0:00:10.680 and four trillion dollars. Why learn more and find your 0:00:10.760 --> 0:00:26.360 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.760 --> 0:00:30.480 I'm Tom Keene with David Gura. Daily we bring you 0:00:30.520 --> 0:00:35.560 insight from the best in economics, finance, investment and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:47.960 of course, on the Bloomberg News. This morning, out of 0:00:48.000 --> 0:00:49.920 London judges ruling there that there has to be a 0:00:49.960 --> 0:00:52.600 vote in Parliament before the UK government can begin the 0:00:52.600 --> 0:00:55.280 two day countdown to your countdown to bregsit. The country's 0:00:55.280 --> 0:00:57.680 Supreme Court has already made room for a December appeal 0:00:57.720 --> 0:00:59.960 on its doc at. Stephanie Flanders of JP Morgan Asset 0:01:00.000 --> 0:01:02.600 Management will join us in just a moment as we 0:01:02.640 --> 0:01:05.280 wait the results of a monetary policy review and new 0:01:05.319 --> 0:01:07.920 inflation projections from the Bank and England. We expect that 0:01:08.160 --> 0:01:10.679 at eight o'clock Wall Street time will bring you bo 0:01:10.680 --> 0:01:14.080 E Governor Mark Carney's comments. Shortly thereafter. In Washington, it 0:01:14.200 --> 0:01:16.800 was as expected, a dead meeting yesterday. The Federal Open 0:01:16.840 --> 0:01:20.720 Market Committee left rates unchanged, hinting they could rise in December. 0:01:20.800 --> 0:01:22.320 Let's get to the latest done Brexit. I want to 0:01:22.319 --> 0:01:24.800 bring in Stephanie Flander's chief market strategist for the UK 0:01:25.000 --> 0:01:29.160 and Europe at JP Morgan Asset Management. Good morning, Stephanie. Morning, 0:01:29.200 --> 0:01:32.080 good to him. Let's let's start with the ruling itself here, 0:01:32.120 --> 0:01:34.679 a panel of judges designing there has to be a vote. 0:01:34.680 --> 0:01:37.520 How big a blow is this to the UK government. Well, 0:01:37.560 --> 0:01:39.160 I think it's it's a blow to the Prime Minister 0:01:39.240 --> 0:01:42.160 Theresa May, who had said very clearly and loudly that 0:01:42.200 --> 0:01:44.240 she didn't want to have this vote. So in that 0:01:44.280 --> 0:01:47.760 sense it's obviously a jolt to her standing and her authority. 0:01:48.200 --> 0:01:51.120 But I would caution those who are sort of seeing 0:01:51.160 --> 0:01:54.560 this as a sign that somehow the UK is not 0:01:54.640 --> 0:01:57.040 going to have not going to leave the EU or 0:01:57.120 --> 0:01:59.160 something that that Article fifty is not going to get 0:01:59.160 --> 0:02:02.440 triggered for member. This is a vote of members of Parliament, 0:02:02.960 --> 0:02:07.240 many of whom have constituencies that voted to leave the 0:02:07.240 --> 0:02:10.760 EU um and certainly even if they didn't, they will 0:02:10.800 --> 0:02:13.040 not want to be seen to be kind of not 0:02:13.160 --> 0:02:16.800 respecting the people's will. We had a majority vote to leave, 0:02:16.880 --> 0:02:22.280 so I think we should be cautious of suggesting that 0:02:22.320 --> 0:02:24.240 this is somehow a sign that we're going to have 0:02:24.320 --> 0:02:26.720 a softer form of Brexit, or that maybe even that 0:02:26.760 --> 0:02:30.160 the UK won't leave the European Union. I think if 0:02:30.200 --> 0:02:31.920 there is a vote, it will be a vote in 0:02:32.000 --> 0:02:34.440 favor of triggering Article fifty, so we may get a 0:02:34.440 --> 0:02:38.360 bit more debate about what, what you know, life outside 0:02:38.360 --> 0:02:40.520 the EU will actually look like for the UK, and 0:02:40.560 --> 0:02:43.120 that would be good perhaps for transparency. Put this in 0:02:43.480 --> 0:02:45.359 some context for us if you would a few days 0:02:45.360 --> 0:02:47.520 ago at a Northern Irish judge rejecting a pair of 0:02:47.600 --> 0:02:50.280 challenges to to the to the Brexit process, how does 0:02:50.280 --> 0:02:54.360 this fit into the panoply of legal challenges we've had. Well, 0:02:54.400 --> 0:02:57.400 as you say we've had, there are lots of different challenges. 0:02:57.440 --> 0:02:59.720 I think this was always the strongest one because there 0:02:59.800 --> 0:03:02.520 was a feeling even among some people who voted for Brexit. 0:03:02.560 --> 0:03:04.400 I think even one of the lawyers involved in this 0:03:04.520 --> 0:03:08.600 challenge of the government that has one today had voted 0:03:08.639 --> 0:03:10.880 for Brexit and just had quite a strong feeling that 0:03:10.960 --> 0:03:14.840 parliament sovereignty should be respected. I think some of the 0:03:14.840 --> 0:03:17.960 other ones that question whether or not the referendum has 0:03:18.000 --> 0:03:21.079 any binding power any of those things. I think they're 0:03:21.160 --> 0:03:23.400 less likely to go anywhere. But this is this is 0:03:23.400 --> 0:03:26.320 always a serious one because many people when they voted 0:03:26.360 --> 0:03:28.720 for to leave that you were actually voting to put 0:03:28.760 --> 0:03:32.480 Parliament back in charge and to give British institutions power 0:03:33.280 --> 0:03:36.000 that some say that they had lost to European institution. 0:03:36.080 --> 0:03:37.320 So it was always a bit odd to say, well, 0:03:37.360 --> 0:03:38.440 we're going to do this, but we're not going to 0:03:38.520 --> 0:03:41.120 let parliament have a say. Remind us who who brought 0:03:41.240 --> 0:03:45.800 this case here? An investor in a hairdresser. Yes, although 0:03:45.840 --> 0:03:48.640 actually it ended up having quite a collection of people 0:03:48.680 --> 0:03:51.640 attached to as I say, because it was considered to 0:03:51.680 --> 0:03:56.120 be quite a good have quite a strong case. Um. 0:03:56.480 --> 0:04:00.960 But as the judges themselves said, it was you know, 0:04:01.040 --> 0:04:04.080 they were very specifically saying, this is not a judgment 0:04:04.080 --> 0:04:06.400 about the rights and wrongs of Brexit or a particular 0:04:06.440 --> 0:04:10.520 model of brexit. This is about the legal process. And 0:04:10.680 --> 0:04:13.160 what they judged was, once you trigger Article fifty, because 0:04:13.280 --> 0:04:16.960 Article fifty says that you have two years then to 0:04:17.040 --> 0:04:19.719 leave the EU and that's going to happen, come what may. 0:04:20.760 --> 0:04:25.000 The view was that that was overriding Parliament's power, because 0:04:25.000 --> 0:04:27.440 even if you had a parliamentary vote somewhere down the way, 0:04:27.440 --> 0:04:29.240 if you were definitely going to leave, you'd never given 0:04:29.279 --> 0:04:31.680 Parliament a choice to say whether they wanted that to happen. 0:04:31.920 --> 0:04:34.839 Theresa made the Prime Minister saying she will appeal this decision, 0:04:35.000 --> 0:04:37.840 and the Supreme Court already has carved out some time 0:04:37.839 --> 0:04:41.960 on the December darket. Yes, and that's obviously an accelerated timetable, 0:04:42.400 --> 0:04:45.119 both you know here and in the US, there's usually 0:04:45.120 --> 0:04:46.880 takes a lot longer for these kind of appeals to 0:04:46.920 --> 0:04:50.000 work through the courts. But they're clearly understand that this 0:04:50.040 --> 0:04:51.760 is something that has to be resolved and they would 0:04:52.480 --> 0:04:54.480 certainly the lawyers involved in the case have said they 0:04:54.520 --> 0:04:56.960 expect this to be resolved one way or another by 0:04:56.960 --> 0:04:59.120 the beginning of the year, So that would clear the 0:04:59.160 --> 0:05:01.880 way for or the Prime Minister to stick to the 0:05:01.920 --> 0:05:05.119 schedule that she suggested, which is to trigger this Article 0:05:05.200 --> 0:05:08.880 fifty process notify the European Union that the UK wants 0:05:08.920 --> 0:05:13.159 to leave formally by February or March. Looking at sterling 0:05:13.160 --> 0:05:16.279 here against the dollar, it's at one forty one a 0:05:16.360 --> 0:05:19.160 three week a three week hi against the dollar. How 0:05:19.240 --> 0:05:22.680 is the market reacted to this, the legal maneuvering that 0:05:22.800 --> 0:05:24.719 this waiting game here to get some clearly on the 0:05:24.760 --> 0:05:28.599 process well to this. This decision obviously was was genuine news, 0:05:28.839 --> 0:05:31.080 and there was a big bounce to sterling that came 0:05:31.080 --> 0:05:34.200 from that, which is largely continued the The equity market 0:05:34.680 --> 0:05:37.200 initially had a positive bounce and then has come back. 0:05:37.240 --> 0:05:39.000 But of course we've seen over the last few months 0:05:39.000 --> 0:05:40.880 that often the pound and the equity market have moved 0:05:40.880 --> 0:05:44.640 in opposite directions because the equity market is so dominated 0:05:44.680 --> 0:05:47.760 by companies with foreign earnings that are that are helped 0:05:47.839 --> 0:05:50.920 by a falling pound. So I wouldn't read too much 0:05:50.920 --> 0:05:52.440 into that. I think the pound move is the most 0:05:52.480 --> 0:05:55.000 significant one. Whether it will last, though, I think it's 0:05:55.000 --> 0:05:57.080 a question mark because, as I say, there's this kind 0:05:57.120 --> 0:06:00.360 of initial a jeep knee jerk reaction to this, which 0:06:00.360 --> 0:06:02.760 is if it's anti treason May and if it's anti government, 0:06:02.800 --> 0:06:05.960 it must be kind of anti Brexit. Um. I'm not 0:06:06.000 --> 0:06:08.720 sure that it does put into into question, you know, 0:06:08.760 --> 0:06:11.840 that fundamental direction of the UK, and if that's that 0:06:12.040 --> 0:06:15.000 leaving of Brexit that's brought the pound down, I think 0:06:15.000 --> 0:06:18.400 the pan could go back down quite easily. Yeah, I am. 0:06:18.920 --> 0:06:22.000 I wonder sort of here in the US, when there's 0:06:22.040 --> 0:06:24.000 a Supreme Court challenge like this, often there will be 0:06:24.080 --> 0:06:27.120 other parties who will sign on. What do we know 0:06:27.120 --> 0:06:28.920 of who might join this case and what it might 0:06:28.920 --> 0:06:30.120 look like. Give us such a sense of how this 0:06:30.200 --> 0:06:32.720 will play out here in December, Yeah, I mean there's not. 0:06:32.800 --> 0:06:35.560 It is a slightly different process, uh, and a lot 0:06:35.600 --> 0:06:41.919 more wigs involved than in the US, So it doesn't 0:06:42.040 --> 0:06:44.279 end up doesn't tend to be the same kind of 0:06:44.279 --> 0:06:46.360 bandwagon that you might see in this kind of very 0:06:46.360 --> 0:06:49.719 politically charged case in in the US. Now that the 0:06:49.720 --> 0:06:52.920 government has actually said they will appeal this decision, there 0:06:52.960 --> 0:06:54.960 was some question about whether they would, but they are 0:06:55.000 --> 0:06:58.000 now going to appeal. Um, it'll be a fairly I 0:06:58.040 --> 0:07:02.679 think the actual legal process will be quite orderly. Of course, 0:07:02.720 --> 0:07:04.919 what you will have and you're already seeing I'm looking 0:07:04.920 --> 0:07:06.719 at my Twitter feed and just the order of the 0:07:06.760 --> 0:07:09.840 comments and the reactions by politicians coming into this vote. 0:07:10.240 --> 0:07:13.200 You will have a battle over the interpretation of this 0:07:13.400 --> 0:07:17.240 ruling and what kind of what that vote would look 0:07:17.280 --> 0:07:19.600 like once we do, if we do indeed have a 0:07:19.680 --> 0:07:22.160 vote in parliament, So all that. There'll be a lot 0:07:22.240 --> 0:07:24.720 of political debate around this, but it won't largely be 0:07:24.760 --> 0:07:27.120 in the in the sort of hallowed courtroom. It will 0:07:27.160 --> 0:07:30.240 be on the airwaves of Bloomberg and everywhere else. What 0:07:30.360 --> 0:07:33.400 did the focus has a lot of other news today 0:07:33.400 --> 0:07:36.800 and out of the United Kingdom a good p M number. 0:07:37.160 --> 0:07:42.760 Stephanie Flair is, what does it signal this resiliency post Brexit. Well, 0:07:42.800 --> 0:07:44.760 I'd be inclined to say partly its signals that we 0:07:44.880 --> 0:07:47.280 haven't left the European Union yet. So all the things 0:07:47.280 --> 0:07:48.880 that one might be worried about in terms of the 0:07:48.880 --> 0:07:51.880 impact of the economy, you know, nothing has actually changed. 0:07:51.920 --> 0:07:53.760 So any effect that you were ever going to see 0:07:53.840 --> 0:07:57.480 was to do with expectations and uncertainty. That hasn't flat 0:07:58.480 --> 0:08:01.400 translated into a falling tumor confidence, which you might have 0:08:01.400 --> 0:08:03.920 thought it might have done. So that's that's showing strength. 0:08:04.400 --> 0:08:08.880 But we've certainly seen it translate into weaker investment intentions 0:08:09.120 --> 0:08:12.160 and concerns around what the trade outlook in the next 0:08:12.200 --> 0:08:13.720 few years is going to be. So, you know, the 0:08:13.760 --> 0:08:16.800 resilience tells us that we haven't had the short term 0:08:16.920 --> 0:08:18.840 hit the confidence we might have had, but we are 0:08:18.880 --> 0:08:21.560 going to have a big hit to consumers coming down 0:08:21.560 --> 0:08:23.960 the track from higher inflation, from the fall in the pound. 0:08:24.320 --> 0:08:27.000 That matters in the economy that is completely dependent at 0:08:27.040 --> 0:08:29.960 the moment for its growth on consumer spending. So watch 0:08:30.000 --> 0:08:32.120 this space. I really don't think that this this the 0:08:32.120 --> 0:08:35.000 impact is going to play out over a long time, Stephanie. 0:08:35.080 --> 0:08:37.120 Thank you so much, Stephanie. Playing as a GP more 0:08:37.120 --> 0:08:40.079 going to set management and most beneficial they've ever run. 0:08:52.559 --> 0:08:57.000 As we got to Charles dooma TSL Research, United Kingdom 0:08:57.120 --> 0:09:02.120 ten year guilts that's their note yield rises six basis 0:09:02.160 --> 0:09:07.040 points to a one point to level. Charles Duma. The 0:09:07.080 --> 0:09:10.920 inflation jump by the BOE. Are you surprised at a 0:09:11.000 --> 0:09:14.880 two point seven percent statistic? Well, I mean, you know 0:09:14.920 --> 0:09:21.320 they have no they have totally poor forecasting record, but 0:09:21.679 --> 0:09:26.000 there's nothing wrong with that number. The latest quarterly, I 0:09:26.040 --> 0:09:28.760 mean just the latest three months, I've seen an annual 0:09:28.880 --> 0:09:33.040 rate of inflation around two and there's very little doubt 0:09:33.080 --> 0:09:35.840 that the target, which is to percent, will be exceeded 0:09:35.840 --> 0:09:39.160 significantly by next year. If you're not by the end 0:09:39.200 --> 0:09:42.400 of this year. So um so that you know they've 0:09:42.400 --> 0:09:44.320 done the right thing. I mean, we're looking at a 0:09:44.360 --> 0:09:47.679 country with a growth rate that's been about potential for 0:09:47.720 --> 0:09:52.560 a while, with full employment, and with a huge devaluation 0:09:52.720 --> 0:09:56.320 and inflation at or above targets. I mean, the only 0:09:56.360 --> 0:09:59.160 thing they can do sooner or later is tighten, not loosen. 0:09:59.559 --> 0:10:01.680 The b he's saying it has a limited tolerance of 0:10:01.720 --> 0:10:04.920 above target inflation. A shift in tone here, saying monetary 0:10:04.920 --> 0:10:07.720 policy can respond quote in either direction to changes in 0:10:07.720 --> 0:10:10.640 the economic outlock. What does that What does that response 0:10:10.679 --> 0:10:14.640 look like? That response looks like softening people up for 0:10:14.679 --> 0:10:16.280 the fact the next move is going to be tightening, 0:10:16.320 --> 0:10:21.640 not not easing. The weight of this court decision, of 0:10:21.640 --> 0:10:23.560 course not not felt in the minutes directly, but it's 0:10:23.600 --> 0:10:26.240 certainly the backdrop to them. The BOE saying there is 0:10:26.240 --> 0:10:28.720 still persistent uncertainty about that EU deal that's going to 0:10:28.760 --> 0:10:31.920 weigh on on the UK economy. I know you've just 0:10:31.960 --> 0:10:34.120 been pouring over the minutes as we are, as we 0:10:34.160 --> 0:10:37.839 have been here, but talk about that weight, how heavy 0:10:37.840 --> 0:10:39.760 that weight is, and how much how long that's going 0:10:39.760 --> 0:10:42.800 to continue to drag on the UK economy. Well, the 0:10:42.840 --> 0:10:45.640 real question is how seriously people choose to take it, 0:10:45.720 --> 0:10:49.360 Because you know, the external carriers as the EU. I've 0:10:49.400 --> 0:10:52.040 seen some people say it's averages sleeps in others that 0:10:52.160 --> 0:10:59.120 is average six whichever that is. The devaluation of vastly 0:10:59.160 --> 0:11:02.319 exceeds at an so that the access have written to 0:11:02.360 --> 0:11:06.560 the to the main markets in the Arizone will will 0:11:07.960 --> 0:11:12.360 be better than it was before Brexit, before the Brexit votes. 0:11:12.400 --> 0:11:15.800 So in that sense, um, it's it's it's not a 0:11:15.840 --> 0:11:18.400 major material factor. But of course as people think it's 0:11:18.400 --> 0:11:21.880 a major material factor, then um, then people will be 0:11:21.920 --> 0:11:25.559 sensitive to the progressive negotiations which are going to take years. 0:11:26.400 --> 0:11:28.640 Well that's the key phrase here, Charles, and this is 0:11:28.679 --> 0:11:31.120 something you've been so good at in your research, is 0:11:31.120 --> 0:11:35.120 the phrase it will take years. The media and David 0:11:35.160 --> 0:11:37.280 and I are is guilty of anybody is trying to 0:11:37.320 --> 0:11:40.920 get to Friday and the US jobs report. You get 0:11:40.920 --> 0:11:43.320 to look you get to look out longer. What is 0:11:43.360 --> 0:11:48.520 the linkage of these market actions to a statistic is simple? 0:11:48.720 --> 0:11:52.079 Is real GDP in the United Kingdom? Are they linked 0:11:52.160 --> 0:11:57.480 or is it over over overweight? Well, I frankly no, 0:11:57.720 --> 0:12:01.640 I think they linked to a view about about Brexit 0:12:01.760 --> 0:12:04.480 which is wrong, name that it's going to be a 0:12:04.480 --> 0:12:07.520 disaster for the British economy um. In fact, my main 0:12:07.559 --> 0:12:11.280 concern is that the British economy actually needs a significantly 0:12:11.320 --> 0:12:14.760 low exchange which is now got um. But of course 0:12:14.800 --> 0:12:17.959 that could easily get unwound if if people reach a 0:12:18.040 --> 0:12:21.400 conclusion that actually things aren't about Yeah, well let's get 0:12:21.440 --> 0:12:23.680 back in. Let's have you be the first one to comment. 0:12:23.720 --> 0:12:27.400 Then Robert sind Jammer's Pierpont completely goes the other way 0:12:27.400 --> 0:12:31.160 from consensus and says, look, I since says I don't 0:12:31.240 --> 0:12:35.440 see bad data, and he doesn't single point forecast, but 0:12:35.520 --> 0:12:38.880 he models a vector to a one thirties sterling. You 0:12:38.920 --> 0:12:42.839 don't think that's outlandish, do you? No, not at all? No, no, no, 0:12:42.920 --> 0:12:45.160 I mean it was one thirty a month ago or so. 0:12:45.360 --> 0:12:48.880 And I'm not sure that they were so wrong. Then So, 0:12:49.679 --> 0:12:52.079 if if we are overestimating here the effects of of 0:12:52.440 --> 0:12:56.800 the brexits, is it because we's because the trading relationship 0:12:56.920 --> 0:12:59.480 is relatively small. And if that is the case, if 0:12:59.480 --> 0:13:02.800 we're Overstan, how long until we get past the psychological 0:13:02.840 --> 0:13:06.240 weight of the vote? Well, I think the trading relationship 0:13:06.360 --> 0:13:09.840 actually is big. It's just that the change in the 0:13:09.920 --> 0:13:12.319 pricing of British goods as a result of that being 0:13:12.360 --> 0:13:16.640 outside rather than inside the EU is relatively small and 0:13:16.679 --> 0:13:19.000 therefore a large quantity of people will be exactly where 0:13:19.040 --> 0:13:20.760 they were before, and in fact some people are better 0:13:20.800 --> 0:13:25.160 off because of the devaluation, which is so it's not 0:13:25.200 --> 0:13:27.800 so much that the training relationship isn't important, it's just 0:13:27.920 --> 0:13:31.600 that the effect on his odd Brexit is being exaggerated. 0:13:32.400 --> 0:13:34.400 To answer your question, how long it will take people, 0:13:34.920 --> 0:13:37.080 you know, I don't think it'll take all that much 0:13:37.200 --> 0:13:42.280 longer of the lack of disastrous numbers for people to 0:13:42.280 --> 0:13:46.000 start saying We'll wait a second. You know, that's unwind 0:13:46.120 --> 0:13:50.440 some of this over excitement. Stephanie Flanders from JP JP 0:13:50.480 --> 0:13:52.240 Morgan asked management at the top of the show, was 0:13:52.280 --> 0:13:54.520 saying the reason the numbers have been good is because 0:13:54.640 --> 0:13:56.439 the UK is still in the European Union. You don't 0:13:56.480 --> 0:13:58.839 you don't buy that argument that that, you know, I 0:13:58.920 --> 0:14:01.720 think things will change once the trigger is pulled. No, 0:14:01.840 --> 0:14:04.240 I don't. I don't think that's relevant at all. I 0:14:04.240 --> 0:14:08.120 think that the relevant point is that is that the 0:14:08.160 --> 0:14:10.920 pound has gone down by much more than the external 0:14:10.960 --> 0:14:14.959 European tariff and so um, you know, in trading terms 0:14:14.960 --> 0:14:17.760 of it not seriously disadvantaged Charles, I want to get 0:14:17.760 --> 0:14:19.480 this and we'll come back and talk about a greater 0:14:19.640 --> 0:14:22.760 US economics in Europe as well, Charles Duma. When you 0:14:22.800 --> 0:14:25.800 look at the current account deficit, that's certainly where everybody 0:14:25.880 --> 0:14:29.120 circles back to. Is the question the level of the 0:14:29.160 --> 0:14:32.720 current account in a hope for a lesser deficit, or 0:14:32.880 --> 0:14:37.360 is the issue the length of time of a substantial deficit? 0:14:38.560 --> 0:14:41.600 I think I think the size is the most important thing, 0:14:41.640 --> 0:14:44.640 and and also the direction, which has been upward. Of course, 0:14:44.760 --> 0:14:48.320 the current account deficit and current account deficits have been 0:14:48.320 --> 0:14:51.240 coming into their own as determinants of foreign exchange. I mean, 0:14:51.680 --> 0:14:54.880 the the end for the last year has been very strong, 0:14:54.960 --> 0:14:57.800 at least partly because the current accounts in large scepters 0:14:57.840 --> 0:15:00.800 and people have lost conviction in RODA in the Bank 0:15:00.840 --> 0:15:05.400 of Japan. Similarly, the Eurozone has a huge current account 0:15:05.440 --> 0:15:09.160 surplus UM and as a result, the hero has failed 0:15:09.160 --> 0:15:11.640 to go down when Mr Drag eases yet more and 0:15:11.720 --> 0:15:16.840 yet more um, contrary to popular expectations. Because the capital 0:15:16.840 --> 0:15:20.080 account is important, but it's no longer quite as important 0:15:20.080 --> 0:15:22.840 as it used to be, because you know, it's entirely 0:15:22.880 --> 0:15:26.040 based on on one's belief in central banks and that 0:15:26.240 --> 0:15:31.360 is weakening. Charles Duma with optimism on the United Kingdom 0:15:31.560 --> 0:15:37.080 economic and I might say political economic experiment with to yourself, Charles, 0:15:37.080 --> 0:15:40.920 do you share the same enthusiasm for the United States 0:15:41.040 --> 0:15:46.080 And is this a fair that is grievously behind? Yes, 0:15:46.160 --> 0:15:49.480 I think so in a way the fits further behind 0:15:49.560 --> 0:15:54.480 than the UK UM and I mean you've got you've 0:15:54.480 --> 0:15:56.440 got an economy. I mean it's not as far behind 0:15:56.440 --> 0:15:59.040 in a way as as the Eurozone, where where they've 0:15:59.080 --> 0:16:02.240 got an economy growing acts and above trend, and it's 0:16:02.280 --> 0:16:06.240 on trend. The inflation rates is very fun it's not 0:16:06.360 --> 0:16:09.840 very far from the target. And they've got massive negative 0:16:10.280 --> 0:16:13.680 interest rates UM, you know, and q E. In the 0:16:13.760 --> 0:16:18.960 US you've got interest rated half percent UM in core 0:16:19.040 --> 0:16:22.240 inflation rate of two percent. The actual inflation rate early 0:16:22.280 --> 0:16:24.840 next year is going to be over two percent because 0:16:24.880 --> 0:16:30.480 the oil price is up from early and you know, 0:16:30.520 --> 0:16:33.360 the economy is going at sort of about two two 0:16:33.360 --> 0:16:35.840 and a half percent, when unfortunately is the trend growth 0:16:35.880 --> 0:16:38.600 rags only one and a half percent. The trouble is 0:16:38.640 --> 0:16:41.960 that that trend growth is so much lower because productivity 0:16:41.960 --> 0:16:44.160 growth is much less than it was and we'll be 0:16:44.200 --> 0:16:47.720 hearing a little bit this afternoon about that. But and 0:16:47.800 --> 0:16:50.400 that this afternoon our time, that is spawning your time. 0:16:50.920 --> 0:16:54.040 What do you make of the growth forecast the revisions 0:16:54.080 --> 0:16:57.280 there again the two se GDP forecasts one point four 0:16:57.320 --> 0:17:00.560 percent versus point eight percent and the cut to one 0:17:00.560 --> 0:17:06.479 point five percent from one in in Britain, yes exactly, 0:17:06.480 --> 0:17:12.320 I mean, yeah, yeah, well, I mean, frankly, these forecasts 0:17:12.320 --> 0:17:15.119 are almost impossible to make. But one the sort the 0:17:15.280 --> 0:17:19.639 sort of numbers are in fact probably at or above 0:17:19.720 --> 0:17:23.200 potential in Britain um. You know, the the labor force, 0:17:24.080 --> 0:17:27.320 certainly if we're going to restrict immigration, is not going 0:17:27.400 --> 0:17:29.159 to be going up as much as in the past, 0:17:29.720 --> 0:17:33.080 and the and and productivity growth has been very small. 0:17:33.160 --> 0:17:36.440 So so I've got to say, you know, it means 0:17:36.640 --> 0:17:41.320 there's more if anything, whatever degree of overheating there is increases. 0:17:41.840 --> 0:17:45.600 And on top of that you get you've got the 0:17:45.640 --> 0:17:50.200 inflation effect of the devaluation. So it all heads towards 0:17:50.760 --> 0:17:55.119 tightening in Britain um. And you know in the US, 0:17:55.200 --> 0:17:58.320 I think the same is true. What's the effect ben 0:17:58.400 --> 0:18:02.120 thus far of of of lower Stirling Again, we've we've 0:18:02.160 --> 0:18:05.199 seen the uptick today, but to what extent is currency 0:18:05.240 --> 0:18:07.679 playing on all of this, Well, I mean it is, 0:18:07.840 --> 0:18:13.040 it is important. The pound is. Sorry, the the inflation 0:18:13.119 --> 0:18:17.760 rate reached one percent in September from much lower levels earlier. 0:18:18.080 --> 0:18:21.160 I slightly exaggerated earlier on when I said it could 0:18:21.160 --> 0:18:23.320 be above the tooth cent target by the end of 0:18:23.320 --> 0:18:28.639 this year, but it should be much closer to that 0:18:28.720 --> 0:18:30.960 too cent target, and it'll be above the top cent 0:18:31.080 --> 0:18:35.119 target pretty early on next year. But you see, until 0:18:35.880 --> 0:18:41.159 until June we were looking at inflation rates about a 0:18:41.240 --> 0:18:44.879 quarter to a half percent. So it's it's it's way out. Well, 0:18:45.240 --> 0:18:47.520 let me circle back then, and to finish up here, 0:18:47.600 --> 0:18:50.240 Charles Duma with what we see from bo E today, 0:18:51.040 --> 0:18:54.920 which is a two two point seven run rate on 0:18:55.040 --> 0:19:00.320 inflation twenty four months. What's where will that inf Asian 0:19:00.359 --> 0:19:04.960 statistic for the United Kingdom? Is it above three percent? No, 0:19:05.080 --> 0:19:08.679 I think that it'll go. It'll go about two on 0:19:08.720 --> 0:19:12.600 an impact effect of the devaluation and that and once 0:19:12.640 --> 0:19:15.880 that moves out of the data, which will be sometime 0:19:16.040 --> 0:19:19.760 late this year, the twelve months data, that is the 0:19:19.760 --> 0:19:23.080 the the growth data, prices will probably start to ease 0:19:23.080 --> 0:19:26.800 back quite quickly because there probably won't be a complete 0:19:26.800 --> 0:19:29.879 follow through in wages, unless, of course they carry on 0:19:30.000 --> 0:19:33.879 staying easy. But it seems more likely than not that 0:19:34.320 --> 0:19:38.640 certainly if the government goes towards an easier fiscal policy 0:19:38.640 --> 0:19:42.600 we talk about that that that the bank thing is 0:19:42.640 --> 0:19:45.760 going to be tightening quite soon. This has been wonderful, Charles, 0:19:46.040 --> 0:19:48.639 I thank you so much. Just the news flaw this 0:19:48.720 --> 0:19:53.560 morning extraordinary and it's great to get his perspective. And again, folks, 0:19:53.600 --> 0:19:55.800 what we try to do on surveillance, David, We've heard 0:19:55.840 --> 0:20:00.159 this all morning. Two starkly different views to star in 0:20:00.240 --> 0:20:03.600 the future of the United Kingdom. Just stunning. Yeah, and 0:20:03.720 --> 0:20:06.320 great to to contrast them with each other. And again 0:20:06.760 --> 0:20:10.280 the new Slat of London in particular today particularly strong 0:20:10.359 --> 0:20:12.640 with that court decision out just before the show kicked 0:20:12.680 --> 0:20:15.520 off this morning that the Parliament would have to vote 0:20:15.520 --> 0:20:18.199 on whether the Government could trigger Article fifty and and 0:20:18.560 --> 0:20:22.639 the reactions subject yes, subject to appeal headed to the 0:20:22.640 --> 0:20:34.919 Supreme Court in the UK in early December. Who you 0:20:35.000 --> 0:20:38.400 put your trust in matters. Investors have put their trust 0:20:38.480 --> 0:20:42.040 in independent registered investment advisors to the two and of 0:20:42.119 --> 0:20:45.560 four trillion dollars. Why they see their roles to serve 0:20:45.800 --> 0:20:49.159 not sell, that's right. Charles Schwab is committed to the 0:20:49.240 --> 0:20:55.400 success over seven thousand independent financial advisors who passionately dedicate 0:20:55.440 --> 0:21:00.240 themselves to helping people achieve their financial goals. Learn more 0:21:00.720 --> 0:21:11.080 and find your independent advisor dot com. David blanche Flower 0:21:11.160 --> 0:21:13.359 joins us now. He was kind enough to be with 0:21:13.440 --> 0:21:15.879 us yesterday for the FED and joins us today with 0:21:15.960 --> 0:21:19.320 the most British perspective as well. David, what you are 0:21:19.359 --> 0:21:21.320 so good at and this goes back to your wage curve. 0:21:21.680 --> 0:21:24.879 Classic is the idea of a nation in the partition 0:21:24.960 --> 0:21:29.639 of its labor. Is London so buoyant, so unique, so 0:21:29.880 --> 0:21:34.840 world class, that the buoyancy of London can support all 0:21:34.920 --> 0:21:40.199 of the United Kingdom towards a lesser inflation, better economic 0:21:40.240 --> 0:21:45.679 growth compared to the gloom, and to a better, stronger sterling. Well, 0:21:45.680 --> 0:21:49.560 obviously it's a big positive and a big help, but 0:21:49.640 --> 0:21:53.000 it can't compensate for what's going on outside London. And 0:21:53.160 --> 0:21:56.280 you only have to look at that house prices. So 0:21:56.320 --> 0:22:00.760 the answer is it clearly helps, but it doesn't help enough. 0:22:01.320 --> 0:22:04.520 And what we've seen this morning are forecasts from the 0:22:04.600 --> 0:22:09.520 MPC which are better in the in two thousands sixteen 0:22:09.600 --> 0:22:13.800 and somewhat worse later. But actually what we're seeing is 0:22:14.000 --> 0:22:19.720 very slow growth, arise in unemployment um and actually quite 0:22:19.760 --> 0:22:23.520 a big pick up in inflation. So the story is 0:22:23.560 --> 0:22:27.239 despite the strength and the resilience of London, it's not 0:22:27.320 --> 0:22:30.600 being able to really kind of deal with the the 0:22:30.640 --> 0:22:33.680 oncoming shock of Brexit. And I always want people to 0:22:33.760 --> 0:22:36.840 keep in their minds that the business cycle rolls, and 0:22:36.880 --> 0:22:39.960 it rolls eight to ten years. We went into recession 0:22:40.000 --> 0:22:42.240 in two thousand and eight, where you canna add eight 0:22:42.240 --> 0:22:45.960 to two thousand and eight, So presumably there's a Brexit shock, 0:22:46.240 --> 0:22:49.680 but also there's a there's a presumably a recession shot 0:22:49.720 --> 0:22:52.760 coming at economies around the world, especially to the UK. 0:22:53.000 --> 0:22:56.320 So these are very tough times. And in some sense 0:22:56.400 --> 0:22:59.520