Speaker 1: Hello and welcome to this special program on the UK economy.
Speaker 1: I'm Caroline Hepcare. Last year was pretty difficult for Britain.
Speaker 1: If you were listening to our coverage, the message was
Speaker 1: pretty clear. The data and the mood among economists and
Speaker 1: business leaders was rock bottom.
Speaker 2: It looks broad based this weakness. It doesn't look like
Speaker 2: a said of one of factors. You know, we're not
Speaker 2: seeing the benefits of strong growth that we could be
Speaker 2: saying in the other countries.
Speaker 3: Say right now, Unfortunately, the United Kingdom is stuck in
Speaker 3: a low growth situation.
Speaker 4: The story of the year has just been, you know,
Speaker 4: one of stagnation.
Speaker 2: Still very grim in terms of the slow rate of
Speaker 2: economic growth.
Speaker 5: Jobs have gone unfortunately and have moved to the EU.
Speaker 5: So there's a definite impact already.
Speaker 2: Next YUK government, we'll need an additional one hundred and
Speaker 2: forty two billion pounds just to keep things going as
Speaker 2: they are.
Speaker 5: We are seeing a really declinism attitude amongst the British population.
Speaker 6: We are now we can confirm it.
Speaker 1: The UK is in recession. So the end of twenty
Speaker 1: twenty three did see the UK suffer two quarters of
Speaker 1: negative growth, a shallow recession. Add to that the long
Speaker 1: running problems of low growth and investment, the ingrained damage
Speaker 1: of Brexit, and more recently political instability, higher taxes and
Speaker 1: interest rates. Now Bloomberg's chief economics writer, Philip Aldrick and
Speaker 1: I summed this up in a long read and a
Speaker 1: radio program some months ago called Britain a drift. But
Speaker 1: by the time we got to the new year twenty
Speaker 1: twenty four, something seemed to have shifted, and so Phil
Speaker 1: and I are back with this special report on whether
Speaker 1: there is a more bullish case to be made for Britain.
Speaker 6: Philip Aldrick joins me.
Speaker 1: Now, Phil, by the time we got to the start
Speaker 1: of this year, the pushback against underestimating the UK economy
Speaker 1: was really quite broad. Wasn't just the sort of usual
Speaker 1: optimistic entrepreneurs or even the almost libertarian Brexit supporting businessman
Speaker 1: Tim Martin who's the chairman of the pub chain Weatherspoons
Speaker 1: that we also spoke to. There are a couple of
Speaker 1: things that really got my attention in terms of the
Speaker 1: positive case. So there was a conversation with Berenberg senior
Speaker 1: economist Callum Pickering and a note from Deutsche Bank senior
Speaker 1: economist Sanjay Raja about the eight silver linings for the
Speaker 1: UK economy. So I suppose I wonder, Phil, what got
Speaker 1: you thinking and focus also on this idea that maybe
Speaker 1: there's more of an upside for Breton.
Speaker 7: A couple of things is there's some fundamentals which are
Speaker 7: pretty good within the economy if we think of the
Speaker 7: economy distinct from the public finances. You've got household balance
Speaker 7: sheets at their best in their best conditions since two
Speaker 7: thousand and two, that's the Bank of England. Corporate balance
Speaker 7: sheets are better than they have been for more than
Speaker 7: twenty three years. Those two things are pretty reassuring. You've
Speaker 7: got lenders, banks have got their capital is pretty strong,
Speaker 7: so you've got these kind of underlying solid fundamentals. Plus,
Speaker 7: we've had six months of real wage growth that will continue.
Speaker 7: If you look at the Bank of Englands forecasts for
Speaker 7: the next couple of years, there is improvements in living
Speaker 7: standards and those improvements in living standards will come through
Speaker 7: quite quickly. In April when we have above inflation increases
Speaker 7: in both the national living wage, the working age benefits
Speaker 7: and in the state pension. Plus the expectation for pay
Speaker 7: settlements this year is above five percent and we're going
Speaker 7: to have inflation at about two percent in April May,
Speaker 7: and then you've got the prospects of these tax cuts
Speaker 7: coming through, plus the National insurance tax cut that's come
Speaker 7: in January. So you've got these fundamentals which are a
Speaker 7: lot more solid, plus the prospect of consumer spending because
Speaker 7: living standards are just generally going to feel a lot better.
Speaker 7: And so you know, twenty nineteen possibly was the last
Speaker 7: year that you could call normal before the pandemic. Then
Speaker 7: we've had a series of shocks, hopefully no more shocks
Speaker 7: this year, and this year will feel normal again and
Speaker 7: that should change the sentiment.
Speaker 1: So that's some of the evidence base then that we
Speaker 1: started out with a bit of a journey because Phil
Speaker 1: and I spoke to a number of perhaps the most
Speaker 1: important CEOs and chairs in UK business right now, from
Speaker 1: insurance to asset management, advertising to property and retail. And
Speaker 1: if you've noticed, it has been quite wet in the
Speaker 1: UK for the past few weeks. My producer was pretty
Speaker 1: determined to get me out there. He almost succeeded. In
Speaker 1: the UK, you learn to love the weather and you
Speaker 1: have to, but when the economy has been as clouded
Speaker 1: over as it has been recently, you start to long
Speaker 1: for any glimmer of sunshine. Last year, it was a
Speaker 1: drizzly day when I spoke to the Marks and Spencer
Speaker 1: chairman Archie Norman at the company's head office in Haddington.
Speaker 1: The drizzle rather matched his mood at the time. He
Speaker 1: was deeply concerned about post Brexit Britain. Since then we
Speaker 1: know the UK has gone into recession. So with that
Speaker 1: in mind and the rain of course still coming down,
Speaker 1: I asked if his forecast is just as downbeat.
Speaker 8: When you're running a business like M and as. Our
Speaker 8: philosophy is we row our own boat and the Caesar
Speaker 8: choppy or the Caesar calm, but our job is to
Speaker 8: make the boat go faster. Actually, our success is more
Speaker 8: to do with how successful we are and reshaping M
Speaker 8: and S than what happens in the market. And you
Speaker 8: know we've had a decent run, but a long long
Speaker 8: way further ago.
Speaker 1: While Norman puts the success of Marx and Spencer down
Speaker 1: to the way that it's run, he does see light
Speaker 1: on the horizon for the consumer and that will help
Speaker 1: his business and many others.
Speaker 8: Very importantly. Wages are now faster than inflation, faster than prices,
Speaker 8: so people are genuinely better off on.
Speaker 1: Everage from the iconic British retailer to one of the
Speaker 1: country's largest pension providers. Legal and General Investment Management manages
Speaker 1: pensions for five million people. Michelle Scrimjaw is the CEO.
Speaker 5: It's easier to focus on the challenges when you're looking
Speaker 5: outside the window of our UK headquarters and it's railing
Speaker 5: down and it's a great day here in London. Actually,
Speaker 5: the UK has been an amazing home for legal in
Speaker 5: general for over one hundred and eighty years.
Speaker 1: But what of this year or next year will the
Speaker 1: UK see significant improvements in growth and wealth?
Speaker 5: So if you think about where the world is today,
Speaker 5: there is a lot of uncertainty. There is geopolitical uncertainty,
Speaker 5: There is in certainty around interest rates. We're no different
Speaker 5: in the UK. We're part of that big ecosystem. So
Speaker 5: if I think about where things could go better, For sure,
Speaker 5: we're still in a post COVID environment. We're still in
Speaker 5: a post energy crisis environment that isn't going away, it
Speaker 5: is working through. So as things work through, there is
Speaker 5: certainly an opportunity for interest rates to come down. Yes,
Speaker 5: we're in a technical recession, but as rates come down
Speaker 5: and that frees up more capital and it actually has
Speaker 5: an impact on individuals and where they are, because don't
Speaker 5: forget this is if there's a cost of living challenge
Speaker 5: here at an individual level, not just an economic challenge
Speaker 5: for the country. I do think there is opportunity.
Speaker 1: L Jim's Michelle Scrimjaw seeing opportunities. So is it the
Speaker 1: start of a more bullish British economy? To know that?
Speaker 1: You also have to get at the heart of what
Speaker 1: drives economic sentiment for a large slice of the UK,
Speaker 1: the property market.
Speaker 7: If monetory is call my tail the yeah, that would
Speaker 7: almost certainly become a problem.
Speaker 1: Property prices well in July at their fastest pace since
Speaker 1: a global financial crisis for the third month in a row.
Speaker 4: The housing market is on track to see the lowest
Speaker 4: level of home sales since twenty twelve.
Speaker 1: But although house prices declined last year, they avoided predictions
Speaker 1: of a collapse, and while office rents in the US fell,
Speaker 1: in the UK that was not the case. British Land
Speaker 1: CEO Simon Carter told me he's now hopeful for us.
Speaker 3: What really matters is unemployment. If people have money in
Speaker 3: their pocket, they spended our retail assets. I think it's
Speaker 3: encouraging that we might see real wage growth that help,
Speaker 3: because we haven't seen a lot of that. And similarly,
Speaker 3: when we're leasing office space, what matters is we do
Speaker 3: top end office space and it's headquarter space where businesses
Speaker 3: are using it to attract and retain talent, and of
Speaker 3: course they want to attract and retain talent when unemployment
Speaker 3: is low. So I think if we can see a
Speaker 3: situation where unemployment remains relatively low, the economy grows a
Speaker 3: little bit and we see a bit of real wage growth,
Speaker 3: the momentum that we've seen over the last couple of
Speaker 3: years can continue, because that's been the odd thing in
Speaker 3: the property market that the investment market, because of higher
Speaker 3: interest rates, has struggled, But actually occupationally it's been very
Speaker 3: good and people have taken space.
Speaker 1: So momentum in the right direction. But what about some acceleration.
Speaker 1: To get that, you need to tap into the buzzword
Speaker 1: on every CEO's lips ay.
Speaker 7: I's going to be important.
Speaker 4: We believe, we're excited about it.
Speaker 1: We're addressing some of the most profound social or challenges
Speaker 1: with AI in ways they're transformative.
Speaker 2: AI is going to change the nature of jobs.
Speaker 4: We believe that AI is the most profound opportunity in
Speaker 4: our lifetimes.
Speaker 9: You heard executives mentioned the word AI about fifty times.
Speaker 1: Advertising giant wpp's CEO, Mark Read is focused on the
Speaker 1: benefits this once in a generation technology could deliver for Britain.
Speaker 10: I think it's a massive opportunity for us. I mean,
Speaker 10: at one level you could say, well, the large language models,
Speaker 10: they're all being created in America. But actually what you
Speaker 10: can do with AI is get access to these models
Speaker 10: extremely cheaply. You know, we're not investing billions of dollars
Speaker 10: at WPPNI we can't afford it, but we are using
Speaker 10: the models created by open AI and Microsoft and Google
Speaker 10: and others to power our work. And so it's really
Speaker 10: about applications of technology. And as you say, because we're
Speaker 10: a service based economy, it could our service structure much
Speaker 10: much more productive, much much more efficient, and I just
Speaker 10: think we have to lean into it and embrace it.
Speaker 1: WPP is planning to spend about two hundred and fifty
Speaker 1: million pounds a year on AI technology. Microsoft is investing
Speaker 1: two and a half billion pounds in UK AI data
Speaker 1: centers over three years, and the government says that it
Speaker 1: wants Britain to be focused on reaping the rewards from
Speaker 1: the AI gold rush. Here's the Deputy Prime Minister, Oliver
Speaker 1: Dowden speaking to Bloomberg at last year's AI summits.
Speaker 11: If you think about how financial services and the City
Speaker 11: of London have so enriched the United Kingdom over the
Speaker 11: past generation or two, I'm convinced that AI can do
Speaker 11: the same thing for the UK over generations to come.
Speaker 1: So the government is persuaded of the benefits of artificial intelligence.
Speaker 1: But John Neil, the CEO of Lloyd's of London, says
Speaker 1: better performance also needs political stability.
Speaker 12: I think we all need the confidence of the two
Speaker 12: term government, well whatever that government is, because I think
Speaker 12: the issues that we're grapping with, you know, and the
Speaker 12: need for confidence and the lack of the confidence that
Speaker 12: whether it's the public or whether it's business, we just
Speaker 12: need the sense that there is a plan and that
Speaker 12: plan is going to have to stretch beyond one term
Speaker 12: of government. So I would say we need change, and
Speaker 12: I'm not saying that has to be a labor government
Speaker 12: versus a conservative government. We do need to change. We
Speaker 12: cannot carry on the way we are.
Speaker 1: And he's concerned that even with the attempts by the
Speaker 1: big political parties to woo the city, too much is
Speaker 1: still being taken for granted.
Speaker 12: Our advantage in insurance is the only marketplace for insurance
Speaker 12: in the world is here. There isn't another one, and
Speaker 12: I think we are standing up and representing the best
Speaker 12: of that or doing our best to illustrate how that
Speaker 12: value can be. We're growing, We're profitable. We need to
Speaker 12: be profitable if we're going to innovate and reinvest in
Speaker 12: what the future looks like. I don't think the same
Speaker 12: is quite true everywhere in financial services.
Speaker 10: We've seen a.
Speaker 12: Wealth of delisting on the foot seat. We've seen real
Speaker 12: challenges around investment and funding in the UK. We need
Speaker 12: to get that back on track.
Speaker 8: You know.
Speaker 12: Part of the livelihood of wellbeing of UKPLC is as
Speaker 12: a global financial services center.
Speaker 1: There's a lot of ground to make up. Even with
Speaker 1: the Chancellor Jeremy Hunt's mansion House reforms, the Footy one
Speaker 1: hundred has lagged global markets since two thousand and eight.
Speaker 1: Investors pulled a record twenty nine billion dollars from UK
Speaker 1: equity funds last year, and Europe's too. He announced recently
Speaker 1: it will delist from London. Those numbers are not lost
Speaker 1: on other CEOs we spoke to. Here's wpp's mark read again.
Speaker 10: I've learned the CEO never really to comment on our
Speaker 10: share price, but I mean, you can but look at
Speaker 10: your valuation relative to your peers in other markets and think,
Speaker 10: you know, there are some possible attractions to being in
Speaker 10: the US that I think the complexities of it make
Speaker 10: it very difficult really in reality for most companies. And
Speaker 10: what we really need to do is get UK pension
Speaker 10: funds investing back in the UK market because you know, ultimately,
Speaker 10: you know, we have a sizable stock market and if
Speaker 10: it's not being supported by pension funds, you know, why
Speaker 10: would international pension funds support us.
Speaker 1: So the UK economy is still under a cloud and
Speaker 1: no one expects rapid growth tomorrow, but there is hope
Speaker 1: that it could stop being rained on and at last
Speaker 1: enjoy some sunshine. So those were some of our conversations
Speaker 1: with CEOs and chairs in the UK. Philip Aldrick, how
Speaker 1: much changed do you think there's been since the last
Speaker 1: big piece that we did on the UK economy in
Speaker 1: April last year? How much hope is there that companies
Speaker 1: will invest more in the UK.
Speaker 7: There has been real numbers supporting the change in sentiment.
Speaker 7: So there was the Global Investment Summit. We had thirty
Speaker 7: billion pounds worth of commitments from international investors and companies.
Speaker 7: Just a few days earlier, there'd been a twenty billion
Speaker 7: dollar commitment from South Korea for infrastructure and renewable investment.
Speaker 7: We had these big commitments from Tata and Nissan and
Speaker 7: Stillantis or the car makers that they are going to
Speaker 7: put money into the UK into the electric vehicle revolution,
Speaker 7: and all of this was happening shortly after we did
Speaker 7: our last piece. It all kind of started to come
Speaker 7: out and I spoke to the Investment Minister, Dominic Johnson,
Speaker 7: and he was saying there was real tepid tone about
Speaker 7: the UK overseas whenever we spoke to foreign investors, and
Speaker 7: that didn't really change until June July when the Tartar
Speaker 7: investment was made, and then since then there's been a
Speaker 7: pickup and you can see that in the number. You
Speaker 7: definitely get a sense that businesses are feeling a lot
Speaker 7: more confident about the UK's prospects and you are seeing
Speaker 7: a bit of that actually delivered on the ground in
Speaker 7: the numbers.
Speaker 1: So let's bring in Bloomberg's chief UK economist, Dan Hanson.
Speaker 1: Then on that point, what about recession? Does that get
Speaker 1: revised away? How much of a negative factor is it
Speaker 1: if we're talking about perhaps a more optimistic tone for
Speaker 1: the UK.
Speaker 2: Yeah, I mean we've run the numbers and if you look,
Speaker 2: because it was, as you've mentioned, it was so shallow,
Speaker 2: there is a pretty good chance it gets revised away.
Speaker 2: If we remember back to twenty eleven twenty twelve when
Speaker 2: we had the double dip, it was revised away. And
Speaker 2: if you look at the way the ONS tends to
Speaker 2: revise its data, we think there's a pretty decent chance
Speaker 2: it gets revised away. I mean, we don't forecast revisions.
Speaker 2: Some in the Bank of England has a bit of
Speaker 2: an industry in but there is a chance it happens.
Speaker 2: I mean, just for me sort of listening to everything.
Speaker 2: There one thing that's really striking about last year, and
Speaker 2: it's something that Andrew Bailey said actually recently, is that
Speaker 2: there was really strong real income growth in the UK
Speaker 2: and twenty twenty three so real income screw by nearly
Speaker 2: two percent, for the economy grew by zero point one
Speaker 2: percent and that's a very weird combination to have. It
Speaker 2: speaks to the idea that if you're going to get
Speaker 2: an upside surprise this year, it stems from consumers, so
Speaker 2: they're going to have to dip into their pockets. And
Speaker 2: I actually think all of what Phil said there, and
Speaker 2: a lot of the people you interviewed, this idea about
Speaker 2: another year of very strong reel income growth is really important.
Speaker 2: But I think the thing that is the difference is
Speaker 2: around uncertainty. You know, we had what appeared to be
Speaker 2: a big inflation problem over the spring. There's a lot
Speaker 2: of uncertainty about the inflation outlook, about the interest rate outlook,
Speaker 2: how high interest rates would need to go to sort
Speaker 2: the inflation problem out, and whether that would coincide with
Speaker 2: a massive rise in unemployment that would be the price?
Speaker 2: Was that going to be the price? And against that backdrop,
Speaker 2: it's not really surprising people were a bit worried and
Speaker 2: didn't spend too much money this year fingers crossed and
Speaker 2: Phil said it there hopefully no more shocks, but things
Speaker 2: look a bit more stable. Interest rates have probably peaked,
Speaker 2: inflation is coming down, and because these energy price effects,
Speaker 2: and it's going to come down quite sharply in the
Speaker 2: next few months, so the outlook looks more stable and
Speaker 2: that should shift sentiment, should shift confidence, particularly amongst consumers.
Speaker 1: And I think that was very much reflected in the
Speaker 1: conversations that we had with Archie Norman, the chairman of
Speaker 1: Marx and Spencer, who kindly enough spoke to us last
Speaker 1: year and then again this year, and he was really
Speaker 1: underlining that fact. You know that he talked about it
Speaker 1: not just being M and S customers who are benefiting
Speaker 1: from increased wages, but it was also his own staff
Speaker 1: Marks and Spencer's has increased wages for stuff and that's
Speaker 1: several million people, you know, plus their families. So I
Speaker 1: think that's an interesting thread. The other interesting thought that
Speaker 1: I think emerged from all of those many conversations that
Speaker 1: we had actually over a number of months Dan was
Speaker 1: the idea that economics is is relative, that the UK's
Speaker 1: performance is always relative, and then unfortunately the rest of
Speaker 1: the world is becoming more insecure and therefore the UK
Speaker 1: might look like a better bet.
Speaker 6: I mean, how good is that for the UK?
Speaker 2: Well, obviously on a global level it's not good that
Speaker 2: it looks a bit more insecure, but I think there
Speaker 2: is something in that in the sense that the UK
Speaker 2: we had a bit of a blip at the end
Speaker 2: of twenty twenty two, but generally the UK is seen
Speaker 2: as a pretty safe bet and amongst developed economies at least.
Speaker 2: You have to remember that we are in a slower
Speaker 2: growth world now, the us A side and all the
Speaker 2: fiscal expansion that's taken place there that's driven that growth,
Speaker 2: But the us A side, if you look across the
Speaker 2: rest of the G seven, we're sort of the middle
Speaker 2: of the pack. It's like we're lagging.
Speaker 13: You know.
Speaker 2: The sort of sentiment and narrative around the UK can
Speaker 2: be quite negative and maybe that's a bit of a
Speaker 2: British thing. I don't know, but look, I think that
Speaker 2: if there is a labor talk about it, don't they
Speaker 2: the stability premium that idea, I think there is something
Speaker 2: to that, to be honest with you, and I think
Speaker 2: the lesson we had at the end of twenty two
Speaker 2: was that it can go wrong very very quickly, So
Speaker 2: there is huge benefit in steering a steady ship. And
Speaker 2: the idea is about keeping the business tax regime very
Speaker 2: consistent and constant. That's really important. And I also think
Speaker 2: the idea that we're never going to get a two
Speaker 2: term parliament, but I think Parliament should think about the
Speaker 2: idea of having a ten year investment plan so that
Speaker 2: investment projects don't immediately get ditched when the government a
Speaker 2: new government comes in because you need, like there's no
Speaker 2: doubt you need more than five years to build most
Speaker 2: of these things. That that's just the reality of it.
Speaker 2: So I think one of the really important things is
Speaker 2: to ensure that we have this steady flow of investment
Speaker 2: because when there is a new government, it's one of
Speaker 2: the easiest things to ditch if you have to sort
Speaker 2: of put in a austerity plan or whatever it might be.
Speaker 2: Investment's just a really easy win. So that for me
Speaker 2: is something that it's not spoken about, and it's probably
Speaker 2: too optimistic to think it would ever come to pass,
Speaker 2: but I think it realistically, if you wanted something good
Speaker 2: on public investment, that's somewhere.
Speaker 6: To look well.
Speaker 1: A number of the seos did talk to us about that.
Speaker 1: I was quite surprised you and I were in on
Speaker 1: the very empty floor in the Lloyd's of London building
Speaker 1: speaking to John Neil, the CEO there.
Speaker 6: They were refurbishing one of the.
Speaker 1: Floors and actually He took us both by surprise because
Speaker 1: he said he wanted to see a two term government,
Speaker 1: whatever that government is, and so Phil we were quite
Speaker 1: surprised by just how warm a lot of the business
Speaker 1: leaders were towards Keir Starmer's Labor Party.
Speaker 7: Yeah, it wasn't just John who was talking about two
Speaker 7: terms or long term planning to your point exactly on
Speaker 7: the sort of investment needs of the country. Michelle Scrimmageer
Speaker 7: was talking about it as well, how you need to
Speaker 7: think in ten year cycles if you're going to try
Speaker 7: and build the country and actually if you're going to
Speaker 7: try and build these businesses. What was really striking was
Speaker 7: that all of the people we spoke to felt pretty
Speaker 7: comfortable with a Labor government. Some of them may have
Speaker 7: even suggested they would vote Labor over the Tories. Definitely.
Speaker 7: The good news in general from them is that they
Speaker 7: believe the political establishment now is stable compared with not
Speaker 7: just Britain's recent past of this trust and the mini
Speaker 7: budget catastrophe in Boris Johnson, the sort of chaotic period there,
Speaker 7: but also compared to other countries where you're seeing the
Speaker 7: rise of populism. In this year where there's fifty general
Speaker 7: election is going to be held potentially two billion voters,
Speaker 7: and the UK is offering two managerial centrists and an
Speaker 7: opposition party that is basically saying we're not going to
Speaker 7: increase corporation taxes or VAT or not all the core taxes.
Speaker 7: The messages. We understand that the most important thing is certainty,
Speaker 7: stability and sort of policy making clarity, because if we
Speaker 7: are going to get growth going, which is ultimately what
Speaker 7: we kind of are writing about, is how we get
Speaker 7: the growth going, and you've got no money at the
Speaker 7: government level to spend try and generate that you need
Speaker 7: to get the business community to do it and the
Speaker 7: investors to do it, and that the business leaders have
Speaker 7: spoken to both political parties and they feel quite reassured
Speaker 7: that both parties understand the importance of what is needed
Speaker 7: to generate the business, the private sector driven growth that
Speaker 7: we're desperately after.
Speaker 1: Well, the next conversation that we have for you is
Speaker 1: actually to that point, the interface between government and business.
Speaker 1: Phil thank you so much for being with me. That
Speaker 1: is our economics writer, Philip Aldrick, and to our UK
Speaker 1: Chief economist Dan Hansen for putting it into perspective.
Speaker 6: I appreciate it.
Speaker 1: We also though, sat down with Britain's biggest business lobby
Speaker 1: to get their reading of the situation in the UK now.
Speaker 1: The CBI Director General Rain Newton Smith, alongside Matt Clifford,
Speaker 1: who is an entrepreneur who shot to prominence just in
Speaker 1: November having organized a very short noticed the Prime Minister's
Speaker 1: AI Safety Summit. He is of course the CEO of Entrepreneur,
Speaker 1: first chair of ARIA and alongside the pension provider Pension
Speaker 1: b just turned profitable in twenty twenty four their CEO,
Speaker 1: Rommy Savova. I was sitting down with them right here
Speaker 1: in Bloomberg's headquarters in London, and I began by asking
Speaker 1: the CBI's Rain Newton Smith whether she thinks there is
Speaker 1: a better case to be made for British business.
Speaker 4: I do think the UK have so many capabilities, but
Speaker 4: we can't rest on our laurels, and to make the
Speaker 4: most of that, we need to make sure we have
Speaker 4: an environment which is really competitive globally in terms of
Speaker 4: our overall tax landscape. I think we've seen some important
Speaker 4: steps that the government have taken on that, but there's
Speaker 4: still more to be done and we need to make
Speaker 4: sure that we're open to people and talent from around
Speaker 4: the world and that we create the right ecosystem around
Speaker 4: innovation to attract some of the best companies here into
Speaker 4: the UK.
Speaker 6: Romy let me turn to you.
Speaker 1: I mean you are an innovative business in the UK
Speaker 1: focus on the pensions industry, and this government under Ashisna
Speaker 1: and the Chancellor Jeremy Hunt have made quite significant efforts
Speaker 1: to try to reform, including the mansion house reforms. Do
Speaker 1: you think that those are going to make a significant
Speaker 1: difference in terms of boosting the economy by increasing investment
Speaker 1: and the options for pension savers to invest well.
Speaker 9: I do think the mansion house reform still remain very
Speaker 9: much in a voluntary phase. I think that until we
Speaker 9: see the investment opportunities within the UK economy for pension funds,
Speaker 9: that most pension funds will simply seek out the best
Speaker 9: investment opportunities on a global basis, because pension funds like
Speaker 9: us are very much here to represent the views and
Speaker 9: the interests of consumers and so there has to be
Speaker 9: a wholesale alignment I believe between consumers and the pensions industry.
Speaker 9: More broadly, Now there is some more slated reform within
Speaker 9: the pension sector which could be very transformative and it's
Speaker 9: something that the government has been calling a pot for life,
Speaker 9: meaning that consumers will be able to choose exactly where
Speaker 9: their pensions are paid into by their employers. And should
Speaker 9: this go ahead in a reasonable timeframe, it can really
Speaker 9: give consumers the voting choice and the voting power to
Speaker 9: support the kinds of businesses and the kinds of investments,
Speaker 9: including in the UK economy that might benefit us all.
Speaker 1: Now, I think the biggest issue for the UK, or
Speaker 1: at least the biggest change that could be coming to workplaces,
Speaker 1: is the artificial intelligence evolution revolution. You've been at the
Speaker 1: heart of that. You advised the Prime Minister, you helped
Speaker 1: to create. The AI Safety Summit happened just before Christmas,
Speaker 1: and that actually, despite all the NA says, it was
Speaker 1: really very well received, wasn't it. But do you think
Speaker 1: that you've got the balance right between the risks the
Speaker 1: word safety and also the actual opportunities that the UK
Speaker 1: could see from AI.
Speaker 13: I think the reason to care about safety is because
Speaker 13: of the opportunities. I mean, the reality is that if
Speaker 13: you look at where the public is on this issue,
Speaker 13: safety is right at the top of their concerns when
Speaker 13: it comes to AI, and you know, I would like
Speaker 13: to see AI broadly diffused through the economy. I think
Speaker 13: it's going to be. You know, probably most people listening
Speaker 13: are already seeing this in their everyday lives, but you
Speaker 13: know it's very poorly diffused today through businesses, through education,
Speaker 13: through public services. Unfortunately, the UK historical has not been
Speaker 13: very good at technology diffusion, at least in the sort
Speaker 13: of software and Internet era, and it's very very important
Speaker 13: that happens. I think is probably the single biggest lever
Speaker 13: we have to improve productivity across the economy, particularly in
Speaker 13: public services.
Speaker 1: I was really interested speaking to the chairman of Marks
Speaker 1: and Spensers, who is talking about how AI is being
Speaker 1: diffused really across the whole of the Marks of Spencer's business.
Speaker 1: Does the UK need to do that be more positive
Speaker 1: about receiving this what could be a huge revolution.
Speaker 13: I think that's absolutely key that there's a sort of
Speaker 13: unified strategy across government, big business and small business to
Speaker 13: make sure that we get adoption. If you think about
Speaker 13: what that's going to take, there's a few things. I mean,
Speaker 13: one is we need to make the UK the best
Speaker 13: place in the world to build AI infrastructure. You know,
Speaker 13: it's really striking how much the AI revolution is really
Speaker 13: a computational revolution. It's about being able to marshal enormous
Speaker 13: amounts of computational power into these models, both when we
Speaker 13: train them when we use them.
Speaker 14: And so I think the UK has to get serious.
Speaker 13: About whether it wants to be an AI superpower. If
Speaker 13: it does, that's going to need, you know, really tough
Speaker 13: decisions about things like planning, about things like energy. This
Speaker 13: is a very energy intensive revolution. But I think there's
Speaker 13: also a big education piece about how to use AI.
Speaker 13: The real challenge today is like can humans use AI
Speaker 13: well enough to make a difference to their own productivity.
Speaker 13: It's not easy, which.
Speaker 1: Is exactly where I want to bring you into the
Speaker 1: CBI rain the skills gat in the UK, or simply
Speaker 1: the skills that the workforce has. Do we have those
Speaker 1: skills the willingness to learn to adapt to this new technology.
Speaker 6: Are we training people quickly enough?
Speaker 9: We absolutely need to do more.
Speaker 4: I think we've got the willingness and the capability, and
Speaker 4: I think, as Mark was saying, it's some you know,
Speaker 4: there is the broader infrastructure need to see in place.
Speaker 4: So one of the things we've been talking with the
Speaker 4: Chancellor and with the Shadow chanswer is we need to
Speaker 4: now be focused on implementing planning reform to allow some
Speaker 4: of these infrastructure and data centers to be here in
Speaker 4: the UK. We also need the grid connections right to
Speaker 4: power that, and we need to make sure that that
Speaker 4: is powered as well by renewable energy. And when it
Speaker 4: comes to the skills to deliver not just that, but
Speaker 4: how we adopt AI and I think one of the
Speaker 4: ways is making it understand understandable in the sense that
Speaker 4: this is just really increasing our compute, you know, our
Speaker 4: computing power. It is an evolution from some of the
Speaker 4: technologies that have existed before. But what we need to
Speaker 4: make sure is that we have capability that we have.
Speaker 4: We're open to talent from around the world where some
Speaker 4: of the best, you know, we're attracting some of the
Speaker 4: best entrepreneurs here into the UK and allowing them to
Speaker 4: set up businesses and bring some of that know how, Ronnie.
Speaker 1: Another piece of the puzzle is that the Chancellor has
Speaker 1: been talking about creating this britt ISA that would actually
Speaker 1: funnel money from pension funds into some of these growth
Speaker 1: UK businesses. Is that something that you think is going
Speaker 1: to make a big difference. Would you like to see
Speaker 1: it adopted at the budget? Well, I think the brid
Speaker 1: er could definitely make a difference. It's again one of
Speaker 1: those initiatives that puts consumers in the driving seed of
Speaker 1: choosing the kinds of investments that they want to be
Speaker 1: selecting to save for retirement, and it will enable them
Speaker 1: to put their money to good work within the UK economy,
Speaker 1: possibly with some additional tax incentives. So it's very hard
Speaker 1: to find something not to like about it, other than
Speaker 1: the fact that perhaps it makes the ISO regime a
Speaker 1: little bit more complicated than it already is. So if
Speaker 1: we can simplify isers a little bit more and offer
Speaker 1: some extra incentives for investing in the UK economy, it
Speaker 1: does feel like a win win situation. Rain I was
Speaker 1: speaking to the e Llowys of London CEO John Neil.
Speaker 1: He says, and he's adamant about this, we need a
Speaker 1: two term government in order to deliver the sort of
Speaker 1: stability to create that economic growth in the UK.
Speaker 5: Do you agree?
Speaker 4: Look, I think what we are trying to do is
Speaker 4: build those areas of political consensus and I think there
Speaker 4: is a clear focus on driving sustainable growth in the
Speaker 4: UK and we absolutely need to see some of that stability.
Speaker 4: So one example of that is we saw the chance
Speaker 4: to make a bold move in the autumn statement around
Speaker 4: allowing full expensing around on capital. So that's making our
Speaker 4: business tax landscape really competitive for investment here in the
Speaker 4: UK and we've seen the Shadow Chancellor also back that policy,
Speaker 4: so that means whoever is in charge after the general election,
Speaker 4: we've businesses have the confidence that that is a policy
Speaker 4: that will remain. So I see our job and from
Speaker 4: any business leaders to really help to build where there
Speaker 4: are areas of political consensus to really drive some of
Speaker 4: that long term stability. And I think we do need
Speaker 4: to celebrate some of the capability the UK has, So
Speaker 4: where are some of the areas we're really going to
Speaker 4: lead the world?
Speaker 1: Man, do you think that it's net three for artificial
Speaker 1: intelligence and for the developments there that we have?
Speaker 6: Stability and government are two term government.
Speaker 13: But I think right now AI is not a part
Speaker 13: of aan issue and that's a really positive thing and
Speaker 13: I hope it stays that way. You know, I do
Speaker 13: think this is going to be the fundamental technology of
Speaker 13: the of the next decade, and.
Speaker 14: I think the thing that's important to understand is by
Speaker 14: default the UK, the UK will you know, neither benefit
Speaker 14: nor software because of AI is entirely in our hands.
Speaker 13: What happens, you know, AI is being developed, you know,
Speaker 13: as we speak, by very large, very capable organizations.
Speaker 14: Actually partly in the UK.
Speaker 13: We're very lucky to have one of the two top
Speaker 13: AI organizations in the world right here in London, in
Speaker 13: Google Deep Mind, the other beat Open Ai. And you know,
Speaker 13: they're going to continue to develop this tech regardless of
Speaker 13: what we do. It's going to almost certainly develop in
Speaker 13: capabilities very quickly. And really the question is doesn't just
Speaker 13: the UK want to be an AI maker or an
Speaker 13: AI take over this decade? Are we willing to make
Speaker 13: whoever's in government the long term investments needed, both in
Speaker 13: into education and skills, in infrastructure, in adoption are required
Speaker 13: to harmash that power.
Speaker 1: Robbie in terms of you know, we're thinking about whether
Speaker 1: there is a more positive case in the UK. I
Speaker 1: think part of the AI story is about the strength
Speaker 1: of the consumer, Whether the consumer and the worker in
Speaker 1: Britain you know, wants to take AI force, wants to
Speaker 1: adopt it, wants to grow. What's your sentiment around consumer
Speaker 1: confidence and therefore business confidence in Britain. Now, do you
Speaker 1: see the green shoots that you mentioned. Absolutely. I think
Speaker 1: the UK is a consumer economy. Consumption accounts for about
Speaker 1: sixty percent of GDP, and so the UK consumer is
Speaker 1: the British economy, and therefore I think it's important to
Speaker 1: have that alignment that if consumers do well, ultimately business.
Speaker 9: Will do well as well. And so the green shoots
Speaker 9: that we're seeing are very much on the consumer confidence side.
Speaker 9: We can see that sentiment is improving about future prospects.
Speaker 9: It feels like the cost of living crisis is easing.
Speaker 9: There is an expectation that inflation will come down further,
Speaker 9: that interest rates will come down, and ultimately that life
Speaker 9: will be more affordable and enjoyable. And it's that consumer
Speaker 9: promise that ultimately must be delivered for everyone to thrive.
Speaker 9: So I think that's really the issue that we need
Speaker 9: to keep investing in making the UK consumer better off
Speaker 9: financially and I think better equipped. Because this is a
Speaker 9: high skills, a high services economy. There is absolutely every
Speaker 9: reason that everyone should thrive here.
Speaker 1: Rain. I hear so much positive rhetoric from economists from
Speaker 1: business people. The data is not quite there yet, is
Speaker 1: it more than rhetoric.
Speaker 4: I do think this year will be a better year,
Speaker 4: and it's building on what Rommy was saying. And inflation
Speaker 4: is coming down, it will down further. And what we're
Speaker 4: also seeing what has made it so difficult for so
Speaker 4: many households has been the fact that pay growth hasn't
Speaker 4: kept pace with that high inflation.
Speaker 9: But as inflation comes.
Speaker 4: Down and we're now seeing that, we should see some
Speaker 4: positive movement in pay in real terms. So essentially people's
Speaker 4: pay will reach further this year and that will help
Speaker 4: to drive households and give them more resources. So I
Speaker 4: think that is one of the reasons why people are
Speaker 4: seeing green shoots in the economy.
Speaker 9: But of course that for.
Speaker 4: Pay growth to be matched, you know, to outpace inflation
Speaker 4: in real terms over time. What do we need productivity growth,
Speaker 4: and that is about how we help our businesses invest
Speaker 4: in people, in skills, in innovation and in technologies like
Speaker 4: AI and you and show how that helps all of
Speaker 4: us be more productive at work, rather than seeing it
Speaker 4: as a technology that is to be feared. We are
Speaker 4: very lucky in the UK to have low employment unemployment
Speaker 4: and that has really been a bedrock for the UK economy.
Speaker 4: So if we can start to see pay growth picking
Speaker 4: up in real terms and maintain that low unemployment, that
Speaker 4: will mean that the prospects feel brighter for the UK economy.
Speaker 1: Okay, a last thought romy on the demographic challenges for
Speaker 1: the UK. I mean, you know, you have more than
Speaker 1: what two one hundred and fifty thousand customers or thereabouts
Speaker 1: you're plugged into the UK saver. In terms of the
Speaker 1: demographic challenges, there is you know, concern about whether people
Speaker 1: have enough savings. What is your view on those challenges
Speaker 1: around demography in Britain, the aging population that Britain does have.
Speaker 9: Well, I think again there are positive sheots to look at.
Speaker 9: I think that large parts of the UK population have
Speaker 9: accumulated wealth that can serve them well into retirement, whether
Speaker 9: that's housing wealth or whether that is pension wealth. Pension
Speaker 9: wealth is actually an incredibly important constituent of the UK's
Speaker 9: overall wealth. So I think that there are savings that
Speaker 9: are absolutely in place. And I think again, if you
Speaker 9: look at the younger aspects of the population, the younger demographics,
Speaker 9: they will be going through automatic enrollment, meaning they will
Speaker 9: be automatically saving every year and by the time they
Speaker 9: do retire, they are likely to have a good nest egg.
Speaker 9: It could be better, we could increase contribution rates further
Speaker 9: through automatic enrollment, but we are definitely on the right
Speaker 9: track for retirement income provision. For those who have not
Speaker 9: yet made the retirement provision that they know that they need,
Speaker 9: there are personal saving solutions, and our view this year
Speaker 9: in particular is with consumer expenditure needs kind of easing,
Speaker 9: that there is more room for saving and we're certainly
Speaker 9: seeing that in the contributions that people are making into
Speaker 9: their penntry this quarter.
Speaker 1: MA the wvpco party, was telling me that he is
Speaker 1: using AI tools, but there are all tools that have
Speaker 1: been created in the United States. He doesn't really need
Speaker 1: to invest that much money because those tools are there.
Speaker 1: And and so that question about the low investment issue
Speaker 1: that Britain does have.
Speaker 13: I do think planning is a huge lever. I think
Speaker 13: there's lots of reasons why this is a great place
Speaker 13: to build AI infrastructure. But you know, planning and energy
Speaker 13: are a big bottlenecks. And then the other big one
Speaker 13: is talent, and you know everyone's brought this up. You know,
Speaker 13: if you want to make the positive case for the UK.
Speaker 13: Then the obvious starting point is talent. We do have
Speaker 13: the best universities in the world outside the United States.
Speaker 13: We have you know, one of the best, maybe the
Speaker 13: best staffsp ecosystem in the world outside the United States.
Speaker 13: We have you know, really extraordinary range of tech companies.
Speaker 13: But the lifeboard of all those things is topped and
Speaker 13: we have to be willing and able to not just
Speaker 13: let the best and the bright sist from around the
Speaker 13: world coin in, but you know actively, you know, core
Speaker 13: and welcome them. That's the fuel that's going to make
Speaker 13: the UK investable.
Speaker 1: That was Matt Clifford, AI expert CEO of Entrepreneur First,
Speaker 1: the Pension b CEO Rommy Savava, and the Confederation of
Speaker 1: British Industry Director General Raine Newton Smith. My thanks to
Speaker 1: all of them for speaking to me here at the
Speaker 1: Bloomberg headquarters. I thought they made the positive case for
Speaker 1: the UK really well, because the sobering fact is that
Speaker 1: many are still deeply skeptical. We surveyed investors for this
Speaker 1: program and ask them what their expectation is for living
Speaker 1: standards in the UK in five years time. Out of
Speaker 1: four hundred and sixty three investors, forty eight percent say
Speaker 1: they expect living standards in the UK to decline versus
Speaker 1: G seven peers over the next five years. Thirty five
Speaker 1: percent see no change, but only seventeen percent say that
Speaker 1: britain living standards will improve. The UK must surely do
Speaker 1: better than that to turn around the economic picture more
Speaker 1: decisively and the rhetoric into reality. Would I take away though,
Speaker 1: from all of my interviews over the past two months,
Speaker 1: is still really hopeful. Britain is fundamentally a high skills economy.
Speaker 1: Inflation is coming down, There's a political consensus around the
Speaker 1: need for economic growth. The Chancellor Jeremy Hunt's changes in
Speaker 1: the autumn statement for business investment taxes and possibly this
Speaker 1: new British ISA in the March budget are being welcomed.
Speaker 1: Business leaders like the CEO of Lloyd's of London, John Neil,
Speaker 1: do think there could be an economic benefit from a new,
Speaker 1: more stable government and this wild new technology that is
Speaker 1: AI is full of possibilities and it's in our hands now.
Speaker 1: As Matt Clifford said, So I hope that the next
Speaker 1: time Philip Aldrick and I ask whether there is a
Speaker 1: bullish case to be made for Britain, the answer might
Speaker 1: be an even more resounding yes in London. I'm Caroline
Speaker 1: Hepker for Bloomberg Radio