WEBVTT - BONUS: Why Are UK Assets Spiraling Now? 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.520 --> 0:00:11.440 Then comparisons are being made to this trust But is 0:00:11.480 --> 0:00:12.840 this more callahan than trusts? 0:00:13.000 --> 0:00:15.600 Is this more seventy six than twenty two? Possibly? 0:00:16.040 --> 0:00:18.000 What we are seeing in the UK, guy is a 0:00:18.040 --> 0:00:24.520 train break in slow motion. Welcome to the City of London, the. 0:00:24.480 --> 0:00:26.560 City of the City of the City of London. 0:00:29.200 --> 0:00:33.239 Please mind the gap between the and the platform, the 0:00:33.280 --> 0:00:40.800 financial hearts of the country, the city, the city. 0:00:41.240 --> 0:00:42.600 Welcome to in the city. 0:00:44.680 --> 0:00:46.960 Stand clear of the doors. 0:00:47.120 --> 0:00:51.040 Pe So, Dave, we're putting a bonus episode out today 0:00:51.120 --> 0:00:53.760 because there's been a lot of turmoil for UK assets. 0:00:53.800 --> 0:00:56.000 Now this is probably not only a UK story, but 0:00:56.120 --> 0:00:59.600 they're definitely at the forefront of this global route sparked 0:00:59.640 --> 0:01:02.400 by I guess latest threats of tariffs and worries that 0:01:02.440 --> 0:01:05.840 inflation will remain elevated in the US for longer than expected. 0:01:06.840 --> 0:01:08.360 Yeah, yeah, absolutely. 0:01:08.440 --> 0:01:10.000 I mean, as I'm sitting here in New York and 0:01:10.360 --> 0:01:13.319 you know, there are echoes of a few years ago. 0:01:13.480 --> 0:01:16.880 Because the UK term on in the market is breaking through. 0:01:16.920 --> 0:01:19.080 People in New York and around the world are asking 0:01:19.360 --> 0:01:20.679 what's going on with the UK assets? 0:01:20.720 --> 0:01:22.720 Why invest It seem to be fleeing. 0:01:22.800 --> 0:01:26.399 We're seeing falls in stocks, falls and bonds and the 0:01:26.440 --> 0:01:27.600 pound at the same time. 0:01:28.200 --> 0:01:29.560 All of that adds up to. 0:01:29.520 --> 0:01:32.760 A real lack of confidence in the UK as a 0:01:32.760 --> 0:01:33.600 place to invest. 0:01:34.160 --> 0:01:36.400 Yeah, and of course the global bond sell off is 0:01:36.440 --> 0:01:40.520 unnerving for many reasons. But of course it changes expectations 0:01:40.720 --> 0:01:44.480 on government's fiscal operations. So we're bringing you the special episode, 0:01:44.640 --> 0:01:47.240 this emergency edition of In the City to try and 0:01:47.319 --> 0:01:49.800 understand what it all means for the Chancellor of Rachel Reeves. 0:01:49.960 --> 0:01:52.240 I'm frontin Laqua in the London studio and. 0:01:52.200 --> 0:01:53.960 I'm David Merritt here in New York. 0:01:54.120 --> 0:01:56.800 And today we're discussing how the UK bond sell off 0:01:56.840 --> 0:01:59.840 is putting Rachel reeves economic projects on the brink, and 0:02:00.080 --> 0:02:02.560 with us Phil Aldrich, our senior reporter covering the UK 0:02:02.640 --> 0:02:05.800 economy and of course a regular on in the City. Phil, 0:02:05.800 --> 0:02:07.800 thank you so much for joining us. It's been a wild, 0:02:08.000 --> 0:02:09.720 wild week for UK assets. 0:02:09.919 --> 0:02:13.240 Why that is the question. Why now it's a bit 0:02:13.240 --> 0:02:15.480 of a quandary. And obviously what's been happening is, you know, 0:02:15.680 --> 0:02:18.400 US bond markets have been moving, Donald Trump has been 0:02:18.440 --> 0:02:21.560 spooking people with tariffs. So there's this backdrop of sort 0:02:21.560 --> 0:02:27.440 of less certainty about the outlook, and the UK is 0:02:27.840 --> 0:02:30.840 has been most exposed of you know, the major economies 0:02:31.040 --> 0:02:33.440 to that. We've seen this big increase in bond yields, 0:02:33.440 --> 0:02:36.240 so government boring costs are soaring, and the pound is falling, 0:02:36.720 --> 0:02:40.040 which is indicative of you know, capital flight in the UK. 0:02:40.160 --> 0:02:43.080 So people are losing confidence in the UK assets. So 0:02:43.480 --> 0:02:46.320 why is it happening now, it seems that people have 0:02:47.639 --> 0:02:50.480 or why is it happening particularly to the UK's people 0:02:50.480 --> 0:02:54.000 will investors seem to be sort of taking the making 0:02:54.040 --> 0:02:58.440 a judgment that Reeves's budget isn't going to deliver what 0:02:58.840 --> 0:03:02.760 is necessary both to bring the debt on put the 0:03:02.800 --> 0:03:06.880 debt on a sustainable footing and to bring inflation down. 0:03:07.520 --> 0:03:09.320 And so there seems to be this kind of this 0:03:09.480 --> 0:03:13.600 nervousness now about the outlook. But having said that, it 0:03:13.680 --> 0:03:16.400 seems a little unfair to put the UK right in 0:03:16.480 --> 0:03:18.840 the crosshairs of all this, given that we do have 0:03:18.880 --> 0:03:22.279 a we have a stable government. You know, by comparison, 0:03:22.840 --> 0:03:24.400 you might say France looks like a bit of a 0:03:24.400 --> 0:03:26.679 basket case at the moment, and yet the UK is 0:03:26.680 --> 0:03:28.239 the one that's really getting it in the neck. 0:03:28.680 --> 0:03:31.160 I mean, Phil, I do remember the conversation we had 0:03:31.200 --> 0:03:34.120 when you came on after the budget and I was 0:03:34.120 --> 0:03:36.480 struck at the time. You were pretty surprised at the 0:03:36.480 --> 0:03:39.680 scale of the tax risers and the spending. It blew 0:03:39.720 --> 0:03:42.560 through your expectations. And you said at the time, I 0:03:42.640 --> 0:03:45.040 remember clearly we talked about this question about the headroom 0:03:45.040 --> 0:03:47.360 and we talked about how there isn't really a room 0:03:47.360 --> 0:03:49.240 for maneuver here if there's a bit of a shock. 0:03:49.560 --> 0:03:51.080 And of course back then we didn't know that Donald 0:03:51.080 --> 0:03:53.080 Trump was going to win the election, and yet it 0:03:53.200 --> 0:03:56.240 was a big possibility and and you said, this is 0:03:56.280 --> 0:03:59.560 a risky budget. You know, there's there's not room from maneuver, 0:03:59.640 --> 0:04:01.520 and you know, and lo it came to pass and 0:04:01.680 --> 0:04:03.640 we've seen more turbines and markets in the UK has 0:04:03.680 --> 0:04:06.000 really copped it. I mean, I think you called it right, 0:04:06.040 --> 0:04:06.400 didn't you. 0:04:07.880 --> 0:04:09.440 I'll tell you that one. It may have been one 0:04:09.440 --> 0:04:13.360 of the few times I did. But yeah, the thing 0:04:13.440 --> 0:04:15.800 is the headroom is is very thin. It's the third 0:04:15.840 --> 0:04:20.600 smallest headroom the Chancellor has had since the OBI was 0:04:20.640 --> 0:04:21.760 set up in twenty ten. 0:04:21.960 --> 0:04:24.240 So is that how big mistake you think, like not 0:04:24.360 --> 0:04:26.880 trying to kind of put the country's finances on a 0:04:26.920 --> 0:04:29.320 more stable first thing and find public services. But she 0:04:29.440 --> 0:04:31.320 just didn't give herself enough room for maneuver in the 0:04:31.360 --> 0:04:32.520 world we're in now, I. 0:04:32.480 --> 0:04:36.560 Think I think that was that was clearly a risk, 0:04:36.600 --> 0:04:39.919 and OBR clearly flagged that risk in the in the 0:04:39.920 --> 0:04:43.560 budget in October, and I do think that was an error. 0:04:43.600 --> 0:04:45.120 I mean, if she had gone with the sort of 0:04:45.120 --> 0:04:48.480 more traditional levels of headroom, which would be twenty five 0:04:48.760 --> 0:04:51.560 billion to thirty billion pounds, you know, this was sort 0:04:51.600 --> 0:04:57.000 of you know, pre twenty nineteen levels, then you know 0:04:58.000 --> 0:05:00.240 this would not have eroded. She would have eroaded half 0:05:00.279 --> 0:05:02.839 her headroom. She'd still have, you know, enough to say 0:05:02.880 --> 0:05:05.239 I can meet my fiscal rules. The whole point about 0:05:05.240 --> 0:05:08.560 the headroom is it's a it's a buffer against unexpected shops. 0:05:08.600 --> 0:05:11.280 If you leave yourself nothing, which is you know this, 0:05:11.400 --> 0:05:13.839 as I say, it was the third slimmest headroom ever, 0:05:15.360 --> 0:05:19.960 then you know you are exposing your rules to movements 0:05:19.960 --> 0:05:22.480 in markets like this, and you know, if you're saying that, 0:05:22.520 --> 0:05:24.839 you know what you're trying to provide is fiscal stability 0:05:24.880 --> 0:05:28.280 on which you can then build your growth program. And 0:05:28.520 --> 0:05:32.240 you've created such a such a small buffer that you 0:05:32.400 --> 0:05:35.880 end up creating policy instability because nobody knows how you're 0:05:35.920 --> 0:05:38.800 going to fill this hole. Should markets move against you, 0:05:38.800 --> 0:05:40.120 you may have to raise taxes, you may have to 0:05:40.160 --> 0:05:43.599 do spending cuts. You know that sort of completely undermines 0:05:44.320 --> 0:05:46.240 the sort of edifice of her project. 0:05:46.440 --> 0:05:49.000 Yes, so basically, you know, if you have a lot 0:05:49.040 --> 0:05:52.240 of pain inflicted by these rapidly rising barring costs, if 0:05:52.240 --> 0:05:54.960 you have razor thin buffers, which is what's happening. So 0:05:55.000 --> 0:05:57.320 the fact that the ten year and the thirty year 0:05:57.400 --> 0:06:00.920 really moved makes it so much more difficult for ratral Reeves, 0:06:01.040 --> 0:06:03.520 especially in a week where there's so many bond auctions. 0:06:03.920 --> 0:06:07.240 Why the UK does she need to now just find 0:06:07.279 --> 0:06:08.200 extra money. 0:06:08.160 --> 0:06:11.080 At the moment she does. I mean markets are fickle. 0:06:11.600 --> 0:06:13.919 It could all move back. And obviously, you know, we 0:06:14.000 --> 0:06:16.599 did have a big move in just the days after 0:06:16.600 --> 0:06:18.760 the budget. Actually, in fact, her entire headroom was wiped 0:06:18.760 --> 0:06:20.560 out within about three or four days, and then the 0:06:20.600 --> 0:06:24.480 markets came back in and readjusted again and she had 0:06:24.720 --> 0:06:28.279 much of her headroom was restored. And now they're going 0:06:28.400 --> 0:06:31.200 back again the other way and they've taken away even more. 0:06:31.560 --> 0:06:34.280 So she's now effectively indeficite. She has made it very 0:06:34.279 --> 0:06:36.240 clear that her fiscal rules are non negotiable. They're her 0:06:36.279 --> 0:06:38.479 iron clad fiscal rules. So she is going to have 0:06:38.640 --> 0:06:42.600 to on March the twenty sixth, if nothing else changes, 0:06:42.640 --> 0:06:45.200 when the fiscal update is presented by the OBI, she 0:06:45.279 --> 0:06:47.800 is going to have to have shown that she is 0:06:48.680 --> 0:06:52.160 repairing to some degree or replenishing the full ten billion 0:06:52.480 --> 0:06:56.720 of headroom she had, and that will require tax rises, 0:06:56.760 --> 0:07:02.159 it will require spending cuts, could require well welfare cuts 0:07:02.160 --> 0:07:04.240 as well, but she's going to have to do something. 0:07:04.279 --> 0:07:06.359 At the moment, they're sort of indicating that. You know, 0:07:06.839 --> 0:07:09.359 there's the spending review coming in June, and there the 0:07:09.400 --> 0:07:13.600 indication is that they'd rather do it through just trimming spending. 0:07:13.720 --> 0:07:15.760 I mean, as you're describing it. Therefore, we're talking about 0:07:15.760 --> 0:07:18.400 the kind of the buffeting of this government by by 0:07:18.400 --> 0:07:19.920 the markets. And you've got a story out and your 0:07:19.960 --> 0:07:22.120 first paragraph you say, six months into her job, her 0:07:22.160 --> 0:07:23.200 project is close to. 0:07:23.200 --> 0:07:27.240 Being in tatters. How did it go so wrong so quickly? 0:07:27.280 --> 0:07:29.080 You know, they talk so much in the election campaign 0:07:29.080 --> 0:07:31.520 about stability, fixing the foundation of the economy. 0:07:31.960 --> 0:07:34.000 Is it external shocks here? Is it? 0:07:34.040 --> 0:07:37.320 What's going on globally or is the blame really to 0:07:37.400 --> 0:07:39.080 be do we need to point the thing a really 0:07:39.120 --> 0:07:40.160 at her and her policies. 0:07:40.360 --> 0:07:42.080 I mean, there's a bit of both. But the I mean, 0:07:42.200 --> 0:07:44.600 the reason why that the project is, you know, in 0:07:44.960 --> 0:07:49.600 deep trouble is because the entire project is based on growth, 0:07:50.120 --> 0:07:54.400 generating the returns that will deliver the public finance, the 0:07:54.440 --> 0:07:56.640 improvement in public finances so that you know, you know, 0:07:56.840 --> 0:07:59.240 basically the debt coming under control. Also all of the 0:07:59.240 --> 0:08:01.800 money for public services. I mean, she did forty billion 0:08:01.800 --> 0:08:04.120 of tax rises, which was you know, the fundamental way 0:08:04.120 --> 0:08:08.480 in which we fixed the public services. That's the goal. 0:08:08.760 --> 0:08:09.360 But then. 0:08:10.680 --> 0:08:13.120 Because of the manifesto pledges that you couldn't just do 0:08:13.200 --> 0:08:16.360 broad based tax rises, she's had to effectively put it 0:08:16.440 --> 0:08:19.440 all on business employer, you know, through the payroll tax, 0:08:19.480 --> 0:08:23.360 which is then causing uncertainty and problems for business about 0:08:23.400 --> 0:08:25.720 how that then comes through the pipe. Will it come 0:08:25.760 --> 0:08:28.760 through in higher prices so it consumers like to pay 0:08:28.800 --> 0:08:32.360 more and that's inflationary. Will it come through in squeezing wages? 0:08:32.600 --> 0:08:36.160 I mean, there was these there's been a combination of 0:08:36.200 --> 0:08:41.480 sort of missteps because it's not clear exactly why, but 0:08:41.520 --> 0:08:43.720 obviously they were trapped set by the Tory Party during 0:08:43.760 --> 0:08:48.280 the election and then and then subsequent decisions that were made. 0:08:48.920 --> 0:08:53.160 But you know, ultimately, if she doesn't get the growth, 0:08:53.920 --> 0:08:55.720 it's going to be very difficult to fix the public 0:08:55.760 --> 0:08:58.199 services and all the pledges she's made on not putting 0:08:58.240 --> 0:09:01.440 taxes on working people, you know, that may have to 0:09:01.440 --> 0:09:04.280 be broken in the worst case scenario. And so the 0:09:05.120 --> 0:09:07.760 project does begin to look like it's can unravel. 0:09:08.160 --> 0:09:10.760 And I think it's it's a good reminder that the 0:09:10.880 --> 0:09:13.160 UK is a small, open economy and I think Mark 0:09:13.200 --> 0:09:15.120 Carney had said, you know, it relies on the kindness 0:09:15.120 --> 0:09:19.520 of strangers. This is an economy that's extremely dependent because 0:09:19.600 --> 0:09:23.600 of the amount of debt on foreign buyers of guilt. 0:09:24.559 --> 0:09:27.400 It's not just the debt actually, it's also that we 0:09:27.440 --> 0:09:29.760 have a we have a current account deficit to our 0:09:29.800 --> 0:09:32.840 trade position, so just paying to pay our way in 0:09:32.840 --> 0:09:35.440 the world, we require, you know, a lot of money 0:09:35.559 --> 0:09:37.839 from foreign foreign, foreign investors into the UK. 0:09:37.960 --> 0:09:38.480 So we've got this. 0:09:38.720 --> 0:09:40.920 I mean, in economics they call it, they talk about 0:09:40.960 --> 0:09:43.360 the twin deficit of the budget deficit and the current 0:09:43.360 --> 0:09:46.160 account deficits. So the government cannot find it itself without 0:09:46.440 --> 0:09:49.640 the kind of strange kindness of strangers that those overseas investors, 0:09:49.880 --> 0:09:52.120 and you know, just in general, like business and the 0:09:52.160 --> 0:09:55.280 way that the economy operates, it also needs that money 0:09:55.360 --> 0:09:59.040 from foreign investment as well. So if we if we 0:09:59.120 --> 0:10:02.000 spook those foreign of us, does they either will take 0:10:02.040 --> 0:10:03.480 their money away or they'll say we want to beat 0:10:03.480 --> 0:10:05.280 which we want to charge us a bit of a premium. 0:10:05.320 --> 0:10:07.880 And that's what's happening now because that's why we're seeing 0:10:08.040 --> 0:10:09.199 those borrowing costs going up. 0:10:12.559 --> 0:10:14.559 What's also struck me this week, FIRL is it is 0:10:14.600 --> 0:10:16.800 kind of what's going on in the real economy. We've 0:10:16.800 --> 0:10:19.280 had trading updates from some of the big bell Weather 0:10:19.360 --> 0:10:22.840 retailers talking about Christmas, you know, and it's this contrast 0:10:22.880 --> 0:10:24.720 because a lot of them have said, haven't they looked 0:10:24.760 --> 0:10:28.120 that we had not a bad performance next Mark Suspenser's 0:10:28.120 --> 0:10:30.679 sales up, But then they've thought they've had these very 0:10:30.679 --> 0:10:33.000 gloomy outlooks. They said, look, we're being piled on with 0:10:33.080 --> 0:10:39.559 extra costs from wages from the National insurance hike, uncertainty 0:10:39.600 --> 0:10:42.959 in the future, and that has caused the share prices 0:10:43.000 --> 0:10:45.320 to take to take fright a bit. So it is 0:10:45.760 --> 0:10:47.800 underneath the hood of the economy. There's a lot of 0:10:48.280 --> 0:10:52.120 trepidation from business and is that feeding through to people thinking, well, 0:10:52.160 --> 0:10:54.920 growth is going to be really challenging, and that makes 0:10:55.120 --> 0:10:57.480 Rachel Reeves's whole project much harder to achieve. 0:10:57.600 --> 0:11:00.439 Yeah, there's there's definitely a sentiment as she going on 0:11:00.920 --> 0:11:02.720 in the business world. I mean, in a way, I 0:11:02.760 --> 0:11:05.280 do look back to sort of post Brexit, where there 0:11:05.440 --> 0:11:10.480 was absolute ridiculous level of uncertainty, and you know, we've 0:11:10.520 --> 0:11:13.320 got a very small fraction of that level of uncertainty 0:11:13.360 --> 0:11:15.600 coursed by all these Knix rises in the national living 0:11:15.600 --> 0:11:19.559 wage going up, and obviously what happened is that business 0:11:19.679 --> 0:11:22.000 learned to live with that uncertainty, and this will be 0:11:22.080 --> 0:11:24.120 much easier to learn to live with than Brexit. So 0:11:24.320 --> 0:11:28.560 I'm a bit cautious about the amount of damage that 0:11:28.960 --> 0:11:32.880 all this will ultimately do to the growth potential, but 0:11:32.960 --> 0:11:36.720 certainly businesses are saying that they're worried, and that's it's 0:11:36.760 --> 0:11:39.480 and it's not helping sentiment. So labor does have a 0:11:39.520 --> 0:11:42.240 growth strategy, which is this big investment plan and basically 0:11:42.240 --> 0:11:46.120 the reform agenda to get planning obstacles removed. Probably with 0:11:46.120 --> 0:11:48.840 that it's a sort of temporal issue. You've got in 0:11:48.920 --> 0:11:51.200 the short term, you've got all these tax rises coming through, 0:11:51.240 --> 0:11:54.920 which will inevitably have some kind of dampening effect on growth, 0:11:55.480 --> 0:11:57.880 But then the investment comes through later, so you can 0:11:57.920 --> 0:12:00.400 then get the growth later on. And so the Office 0:12:00.400 --> 0:12:04.920 of Budget Responsibility is forecasting more optimistic growth trajectory in 0:12:04.960 --> 0:12:07.520 the back towards the back end of the forecast. But 0:12:07.559 --> 0:12:11.520 in the short term we're obviously facing this particular conundrum. 0:12:11.559 --> 0:12:14.600 And so people, i mean markets are looking at the 0:12:14.640 --> 0:12:19.319 immediate what's happening immediately, and you know, the budget forecasters 0:12:19.360 --> 0:12:22.600 are looking what's happening what's longer term, And obviously the 0:12:22.600 --> 0:12:25.280 government is trying to think has always been trying to 0:12:25.280 --> 0:12:26.959 think longer term. It's a question of whether they can 0:12:27.000 --> 0:12:29.920 get to that longer term thing without being completely disrupted 0:12:29.920 --> 0:12:30.760 by the market moves. 0:12:30.920 --> 0:12:32.760 It Phil is as soon as you have, you know, 0:12:32.960 --> 0:12:36.280 big market moves and the market it's also almost a 0:12:36.320 --> 0:12:39.360 self fulfilling prophecy, right, And I know you wrote about 0:12:39.360 --> 0:12:42.079 the fact that you have these big move in borrowing 0:12:42.160 --> 0:12:46.240 costs in guilds but also pound and so you just 0:12:46.280 --> 0:12:48.800 have to make sure that investors don't completely lose faith. 0:12:49.160 --> 0:12:51.560 There's been a lot written about the speed of the 0:12:51.640 --> 0:12:54.240 moves and the fact that it was a little bit 0:12:54.400 --> 0:12:56.880 like the Loose Trust mini budget and that was like 0:12:56.920 --> 0:13:01.240 a horror show. Is the market much better placed now 0:13:01.360 --> 0:13:04.120 in terms of being strengthened since that budget or is 0:13:04.160 --> 0:13:06.160 it more like the nineteen seventies deck crisis. 0:13:06.600 --> 0:13:09.800 Well, Martin Wheel's the former Bank of England rate center 0:13:09.800 --> 0:13:12.920 who's drawn this nineteen seventy six analogy when the UK 0:13:13.040 --> 0:13:15.320 went to the IMF for a three point nine billion 0:13:15.360 --> 0:13:21.080 dollar loan. Obviously, the issue here is whether you know 0:13:21.760 --> 0:13:25.559 markets aren't going to basically just turn against the UK entirely. 0:13:25.920 --> 0:13:31.120 I mean, I'd be cautious to say either scenario is 0:13:31.280 --> 0:13:34.839 the outlook at the moment, because we had huge short 0:13:34.920 --> 0:13:39.160 term movements and they and they kind of catalyzed into 0:13:39.200 --> 0:13:43.680 massive catastrophes through the LDI crisis that we had. We're 0:13:43.679 --> 0:13:46.240 having smaller moves now. It's kind of orderly, I mean, 0:13:46.280 --> 0:13:48.320 as what I think at Deutsche Bank, ever, nota the 0:13:48.400 --> 0:13:52.760 foreign exchange desks suggested or they were saying that in 0:13:52.800 --> 0:13:54.800 a way, the fact that this is not an acute 0:13:54.800 --> 0:13:57.480 crisis like liz Trust, it is kind of worse because 0:13:57.520 --> 0:14:00.120 it's actually saying people are genuinely worried about some of 0:14:00.160 --> 0:14:03.959 the under underlying dynamics in the UK economy. But it 0:14:04.080 --> 0:14:06.480 does mean, it does mean that you can get this 0:14:06.559 --> 0:14:10.199 kind of chronic picture for you know, the UK trajectory, 0:14:10.240 --> 0:14:13.040 which can which which can then become a dominant narrative. 0:14:13.360 --> 0:14:16.480 But that's not as dangerous in terms of immediate risks 0:14:16.760 --> 0:14:20.560 as a kind of complete acute catastrophe overnight, which can 0:14:20.640 --> 0:14:23.720 absolutely as we saw in twenty twenty two, you know, 0:14:23.960 --> 0:14:25.200 destroy a premiership. 0:14:25.800 --> 0:14:27.720 Yeah, in some ways, are we still kind of living 0:14:27.840 --> 0:14:30.000 I mean, you know, after Chison I took over and 0:14:30.080 --> 0:14:32.800 Jeremy Hunt, they talked a lot about repairing the damage 0:14:32.840 --> 0:14:37.040 to Britain's reputation internationally from the trust to backle and 0:14:37.120 --> 0:14:39.560 you know what was it called the Moron premium on 0:14:39.600 --> 0:14:41.320 not UK bonds and all that, and that seems to 0:14:41.360 --> 0:14:44.520 have worked. But is the revival of these questions. Are 0:14:44.520 --> 0:14:47.560 we still kind of seeing the legacy of that, shaking 0:14:47.600 --> 0:14:49.480 of the foundational belief that Britain is a good place 0:14:49.520 --> 0:14:50.040 to invest. 0:14:50.520 --> 0:14:53.080 At the moment, you can't help but think that, right, 0:14:53.160 --> 0:14:56.560 I mean, the UK has historically been a safe Haven 0:14:56.720 --> 0:15:01.680 and suddenly you have that trust situation where you know, 0:15:01.920 --> 0:15:04.640 we can mess things up so badly that it causes 0:15:04.840 --> 0:15:07.760 a massive market panic, and you know, for a brief period, 0:15:07.960 --> 0:15:10.280 you know, George Osborne in twenty ten used to say, 0:15:10.280 --> 0:15:12.560 We've got to worry about our you know, our sovereign 0:15:12.640 --> 0:15:15.480 position because we you know, there's a Greek debt crisis 0:15:15.480 --> 0:15:17.440 and we could be like Greece. And it always seemed 0:15:17.440 --> 0:15:19.160 like a lot of nonsense and a lot of politics, 0:15:19.240 --> 0:15:21.760 and suddenly, you know, for a brief two week period, 0:15:21.800 --> 0:15:23.440 we kind of did look a little bit like Greece, 0:15:23.480 --> 0:15:26.640 and so that might have changed people's the way people 0:15:26.760 --> 0:15:28.800 view the UK. So I don't think it definitely don't 0:15:28.800 --> 0:15:30.640 think it has helped the problem with labor is that 0:15:30.720 --> 0:15:33.000 labor is always you know, starting off on the back 0:15:33.000 --> 0:15:35.920 foot with markets, and financial markets will be less sympathetic 0:15:35.960 --> 0:15:38.720 to policies that they undertake. So should the Tories have 0:15:38.760 --> 0:15:41.160 done exactly the same thing, it could be pretty sure 0:15:41.160 --> 0:15:44.960 that they would not be getting as sharp a backlashes 0:15:45.360 --> 0:15:49.960 as labor are just because of the history. Really, so 0:15:50.120 --> 0:15:52.120 it does make it just does make life a little 0:15:52.120 --> 0:15:53.200 bit more difficult for us and co. 0:15:54.000 --> 0:15:57.000 So feel going forward because of the market moves. Basically 0:15:57.080 --> 0:16:00.600 this week, it basically wiped out the spending buffer of 0:16:00.640 --> 0:16:03.360 around nine point nine billion pounds that Rachel Reeves has. 0:16:03.760 --> 0:16:06.920 Does it I mean if it continues, you she'll have 0:16:06.960 --> 0:16:09.880 to find extra money. Do we have an emergency budget budget? 0:16:10.000 --> 0:16:11.760 Is it too soon to say? And if we do 0:16:11.920 --> 0:16:15.080 have something that she needs to do quickly. She's ruled 0:16:15.080 --> 0:16:18.000 out tax hikes, so does she just have to cut spending? 0:16:18.880 --> 0:16:21.240 Yeah, So that in the moment they're doing the spending 0:16:21.280 --> 0:16:25.280 review conversation, So the departments are seeing Darren Jones at 0:16:25.280 --> 0:16:29.000 the Treasury. He's the chief secretary who helps set their budgets, 0:16:30.240 --> 0:16:33.600 and the message effectively is that the spending envelope which 0:16:33.680 --> 0:16:36.560 was set in the October budget cannot go higher, but 0:16:36.640 --> 0:16:39.080 it certainly can be smaller, and if they need to 0:16:39.120 --> 0:16:42.080 find a few billion quit, they can just basically trim 0:16:42.080 --> 0:16:44.040 it from the sort of you know, I think it's 0:16:44.280 --> 0:16:47.160 about seven hundred billion pounds of departmental spending and your 0:16:47.160 --> 0:16:50.120 departmental spending, so you know, in that scheme of things, 0:16:50.120 --> 0:16:55.320 it's not an awful lot of money. Personally, I would 0:16:55.480 --> 0:16:58.280 I would not be surprised if we see some fiddling 0:16:58.320 --> 0:17:00.720 of the aid budget, which has already dropped from two 0:17:00.720 --> 0:17:02.800 point seven to zero point five. And they obviously need 0:17:02.800 --> 0:17:05.359 to increase defense spending, so you know, they can some 0:17:05.600 --> 0:17:08.080 I don't know if they can change the accounting treatments 0:17:08.080 --> 0:17:10.240 and move more of it, you know, just move money 0:17:10.280 --> 0:17:12.960 out out of aid into defense. But they'll be looking 0:17:13.000 --> 0:17:15.320 for painless ways of doing this because one of the 0:17:15.320 --> 0:17:18.240 problems that you hear from you know, investors is that 0:17:18.480 --> 0:17:23.040 in a market financial market investors, is that there is 0:17:23.080 --> 0:17:25.639 a there was potentially a credibility problem if they just 0:17:25.680 --> 0:17:29.040 try and cut departmental spending, because that was exactly the 0:17:29.080 --> 0:17:34.960 fiscal fiction that nobody, nobody believed that the spending trajectories 0:17:35.760 --> 0:17:38.280 from the March budget. When Hunt did his final budget 0:17:38.440 --> 0:17:41.159 for the Tories, no one believed those spending trajectories. And 0:17:41.200 --> 0:17:44.280 that's what Labor had to fix, and that's what the 0:17:44.280 --> 0:17:46.480 forty billion pounds of tax risers was for. If you 0:17:46.560 --> 0:17:48.840 go back, if she pushes back and says, actually, now 0:17:48.840 --> 0:17:51.960 we're going to do We're going to cut those budgets 0:17:52.520 --> 0:17:55.399 from where we've put them in October, the markets may 0:17:55.440 --> 0:17:58.280 just think this is nonsense. You know, it's another physcical fiction, 0:17:58.600 --> 0:18:02.399 wer credibility. We're not gonna that's not gonna wash, and 0:18:02.440 --> 0:18:05.080 we're going to still turn against you because what you're 0:18:05.119 --> 0:18:08.320 doing is trying to trick us. And I think, you know, 0:18:08.400 --> 0:18:10.520 we've got to this point where you just can't trick 0:18:11.200 --> 0:18:14.520 the markets any any longer. They're kind of they've reached 0:18:14.520 --> 0:18:15.160 the end of the tether. 0:18:15.359 --> 0:18:19.080 Yeah, we'd say, obviously we've heard some you know, attempts 0:18:19.119 --> 0:18:21.600 to calm the markets, and you know, the Chief Treasury 0:18:21.640 --> 0:18:23.280 is saying that, you know, the market moves are all 0:18:23.359 --> 0:18:25.760 in all this stuff. But on the politics of this 0:18:25.800 --> 0:18:28.440 as well. The chance has gone off to China, hasn't 0:18:28.520 --> 0:18:30.960 she on a on a trip, and some discussion about 0:18:30.960 --> 0:18:32.040 whether that was the right thing to do. 0:18:32.160 --> 0:18:33.639 I I hesitate a. 0:18:33.640 --> 0:18:35.960 Little bit of I'm going to say anyway about remembering 0:18:36.000 --> 0:18:38.520 Kusa Quat and going off to Washington at the height 0:18:38.560 --> 0:18:40.600 of the trust to AKM. Of course, on his way 0:18:40.640 --> 0:18:42.640 back he didn't have a job. I don't think. I'm 0:18:42.640 --> 0:18:45.800 assuming you don't think we're quite there yet. But you know, 0:18:46.000 --> 0:18:47.719 is it wise the chance to fly to the other 0:18:47.760 --> 0:18:49.720 side of the world when the markets are convulsing like this? 0:18:50.960 --> 0:18:54.560 I mean, I don't think it's I don't think I 0:18:54.600 --> 0:18:56.680 don't think it's a problem. It's because it's not acute. 0:18:56.680 --> 0:18:59.960 It's because it's not like trusts. I don't think it's comparable. 0:19:00.000 --> 0:19:02.800 I mean, actually that that nineteen seventy six analogy is 0:19:04.160 --> 0:19:06.680 it's similar because Dennis Healy was on his way to Washington, 0:19:06.720 --> 0:19:09.399 he was the chancellor in nineteen seventy six, and he 0:19:09.480 --> 0:19:11.400 had to turn around at the airport and head back 0:19:11.920 --> 0:19:13.960 to the Labor Party conference at the time and tell 0:19:14.000 --> 0:19:15.600 them that they're going have to tighten their belts. 0:19:15.600 --> 0:19:16.640 But the. 0:19:18.080 --> 0:19:20.639 Yeah, I think she should go to China and she 0:19:20.640 --> 0:19:22.720 should be looking, you know, they should be looking beyond 0:19:22.720 --> 0:19:25.680 this because this is this is something which can be 0:19:25.720 --> 0:19:30.000 addressed in coming days. Obviously, you know, on Monday, if 0:19:30.040 --> 0:19:34.520 the market's convulsed massively, she should be back in time 0:19:34.600 --> 0:19:35.239 to deal with that. 0:19:35.280 --> 0:19:38.000 But you know it's I mean, just come back to 0:19:38.040 --> 0:19:40.439 your story field. You know, the project is close to 0:19:40.480 --> 0:19:42.159 being in tatus. If it becomes to be in tatus, 0:19:42.240 --> 0:19:44.880 can she can our first female chance to eight hundred years, 0:19:44.880 --> 0:19:46.160