1 00:00:02,720 --> 00:00:07,240 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,560 --> 00:00:11,479 Speaker 2: Then comparison are being made to this trust But is 3 00:00:11,520 --> 00:00:12,880 Speaker 2: this more callahan than trusts? 4 00:00:13,039 --> 00:00:14,880 Speaker 1: Is this more seventy six than twenty two? 5 00:00:15,160 --> 00:00:15,640 Speaker 3: Possibly? 6 00:00:16,079 --> 00:00:18,040 Speaker 2: What we are seeing in the UK, guy is a 7 00:00:18,079 --> 00:00:19,319 Speaker 2: train break in slow motion. 8 00:00:22,440 --> 00:00:24,959 Speaker 3: Welcome to the City of London, the city of the 9 00:00:25,000 --> 00:00:26,599 Speaker 3: City of the City of London. 10 00:00:28,480 --> 00:00:32,240 Speaker 4: Then we need mind the gap between the and the 11 00:00:32,360 --> 00:00:35,800 Speaker 4: PA the financial hearts of the country. 12 00:00:39,600 --> 00:00:41,000 Speaker 3: The city, the city. 13 00:00:41,280 --> 00:00:42,640 Speaker 2: Welcome to in the city. 14 00:00:44,720 --> 00:00:49,560 Speaker 4: Then clear of the doors. Pe So, Dave, we're putting 15 00:00:49,600 --> 00:00:52,400 Speaker 4: a bonus episode out today because there's been a lot 16 00:00:52,400 --> 00:00:54,840 Speaker 4: of turmoil for UK assets. Now this is probably not 17 00:00:54,920 --> 00:00:57,520 Speaker 4: only a UK story, but they're definitely at the forefront 18 00:00:57,560 --> 00:01:01,000 Speaker 4: of this global route sparked by I guess latest threats 19 00:01:01,000 --> 00:01:04,360 Speaker 4: of tariffs and worries that inflation will remain elevated in 20 00:01:04,400 --> 00:01:05,880 Speaker 4: the US for longer than expected. 21 00:01:06,880 --> 00:01:08,400 Speaker 3: Yeah, yeah, absolutely. 22 00:01:08,480 --> 00:01:10,040 Speaker 2: I mean, as I'm sitting here in New York and 23 00:01:10,400 --> 00:01:13,360 Speaker 2: you know, there are echoes of a few years ago. 24 00:01:13,520 --> 00:01:16,920 Speaker 2: Because the UK term on in the market is breaking through. 25 00:01:16,959 --> 00:01:19,120 Speaker 2: People in New York and around the world are asking 26 00:01:19,400 --> 00:01:21,400 Speaker 2: what's going on with the UK assets? Why invest It 27 00:01:21,480 --> 00:01:25,479 Speaker 2: seem to be fleeing. We're seeing falls and stocks falls 28 00:01:25,480 --> 00:01:28,400 Speaker 2: and bonds and the pound at the same time. All 29 00:01:28,440 --> 00:01:30,800 Speaker 2: of that adds up to a real lack of confidence 30 00:01:31,319 --> 00:01:33,640 Speaker 2: in the UK as a place to invest. 31 00:01:34,200 --> 00:01:36,440 Speaker 4: Yeah, and of course the global bond sell off is 32 00:01:36,480 --> 00:01:40,559 Speaker 4: unnerving for many reasons. But of course it changes expectations 33 00:01:40,760 --> 00:01:44,520 Speaker 4: on government's fiscal operations. So we're bringing you the special episode, 34 00:01:44,680 --> 00:01:47,240 Speaker 4: this emergency edition of In the City to try and 35 00:01:47,360 --> 00:01:49,840 Speaker 4: understand what it all means for the Chancellor of Rachel Reeves. 36 00:01:50,000 --> 00:01:52,280 Speaker 4: I'm frontin Laqua in the London studio and. 37 00:01:52,240 --> 00:01:53,920 Speaker 3: I'm David Merritt here in New York. 38 00:01:54,160 --> 00:01:56,840 Speaker 4: And today we're discussing how the UK bond sell off 39 00:01:56,880 --> 00:02:00,160 Speaker 4: is putting Rachel reeves economic projects on the brink with 40 00:02:00,240 --> 00:02:03,160 Speaker 4: us Phil aldrich Or, senior reporter covering the UK economy 41 00:02:03,440 --> 00:02:05,840 Speaker 4: and of course a regular on in the City. Phil, 42 00:02:05,840 --> 00:02:07,840 Speaker 4: thank you so much for joining us. It's been a wild, 43 00:02:08,040 --> 00:02:09,840 Speaker 4: wild week for UK assets. 44 00:02:09,960 --> 00:02:11,280 Speaker 3: Why that is the question. 45 00:02:11,320 --> 00:02:14,240 Speaker 1: Why now it's a bit of a quandary. And obviously 46 00:02:14,240 --> 00:02:16,760 Speaker 1: what's been happening is, you know, US bond markets have 47 00:02:16,840 --> 00:02:19,840 Speaker 1: been moving. Donald Trump has been spooking people with tariffs. 48 00:02:19,960 --> 00:02:24,200 Speaker 1: So there's this backdrop of sort of less certainty about 49 00:02:24,280 --> 00:02:29,160 Speaker 1: the outlook, and the UK is has been most exposed 50 00:02:29,520 --> 00:02:31,800 Speaker 1: of you know, the major economies to that. We've seen 51 00:02:31,800 --> 00:02:34,480 Speaker 1: this big increase in bond yields, so government boring costs 52 00:02:34,520 --> 00:02:38,120 Speaker 1: are soaring, and the pound is falling, which is indicative 53 00:02:38,320 --> 00:02:40,560 Speaker 1: of you know, capital flight in the UK. So people 54 00:02:40,560 --> 00:02:43,840 Speaker 1: are losing confidence in the UK assets. So why is 55 00:02:43,880 --> 00:02:47,880 Speaker 1: it happening now? It seems that people have well, why 56 00:02:47,919 --> 00:02:51,120 Speaker 1: is it happening, particularly to the UK's people. Will investors 57 00:02:51,160 --> 00:02:54,639 Speaker 1: seem to be sort of taking the making a judgment 58 00:02:54,720 --> 00:02:59,680 Speaker 1: that Reeves's budget isn't going to deliver what is necessary 59 00:03:00,240 --> 00:03:03,200 Speaker 1: to bring the debt on, put the debt on a 60 00:03:03,240 --> 00:03:07,920 Speaker 1: sustainable footing, and to bring inflation down, and so there 61 00:03:07,960 --> 00:03:11,160 Speaker 1: seems to be this kind of this nervousness now about 62 00:03:11,480 --> 00:03:14,400 Speaker 1: the outlook. But having said that, it seems a little 63 00:03:14,480 --> 00:03:17,240 Speaker 1: unfair to put the UK right in the crosshairs of 64 00:03:17,280 --> 00:03:19,400 Speaker 1: all this, given that we do have a we have 65 00:03:19,440 --> 00:03:23,400 Speaker 1: a stable government. You know, by comparison, you might say 66 00:03:23,440 --> 00:03:25,280 Speaker 1: France looks like a bit of a basket case at 67 00:03:25,280 --> 00:03:27,200 Speaker 1: the moment, and yet the UK is the one that's 68 00:03:27,240 --> 00:03:28,240 Speaker 1: really getting it in the neck. 69 00:03:28,720 --> 00:03:31,200 Speaker 2: I mean, Phil, I do remember the conversation we had 70 00:03:31,200 --> 00:03:34,160 Speaker 2: when you came on after the budget and I was 71 00:03:34,160 --> 00:03:36,280 Speaker 2: struck at the time you were you were pretty surprised 72 00:03:36,280 --> 00:03:38,760 Speaker 2: at the scale of the tax risers and the spending. 73 00:03:39,280 --> 00:03:40,800 Speaker 3: It blew through your expectations. 74 00:03:41,200 --> 00:03:43,440 Speaker 2: And you said at the time, I remember clearly we 75 00:03:43,440 --> 00:03:45,880 Speaker 2: talked about this question about the headroom and we talked 76 00:03:45,880 --> 00:03:48,280 Speaker 2: about how there isn't really room for maneuver. 77 00:03:47,920 --> 00:03:49,280 Speaker 3: Here if there's a bit of a shock. 78 00:03:49,600 --> 00:03:51,120 Speaker 2: And of course back then we didn't know that Donald 79 00:03:51,120 --> 00:03:53,120 Speaker 2: Trump was going to win the election, and yet it 80 00:03:53,240 --> 00:03:56,280 Speaker 2: was a big possibility and and you said, this is 81 00:03:56,320 --> 00:03:59,600 Speaker 2: a risky budget. You know, there's there's not room from maneuver, 82 00:03:59,680 --> 00:04:01,560 Speaker 2: and you know, and low it came to pass and 83 00:04:01,720 --> 00:04:03,680 Speaker 2: we've seen more turbinines and markets in the UK has 84 00:04:03,720 --> 00:04:06,040 Speaker 2: really copped it. I mean, I think you called it right, 85 00:04:06,080 --> 00:04:06,440 Speaker 2: didn't you. 86 00:04:07,880 --> 00:04:09,480 Speaker 1: I'll tell you that one. It may have been one 87 00:04:09,480 --> 00:04:13,400 Speaker 1: of the few times I did. But yeah, the thing 88 00:04:13,480 --> 00:04:15,800 Speaker 1: is the headroom is is very thin. It's the third 89 00:04:15,880 --> 00:04:20,640 Speaker 1: smallest headroom the Chancellor has had since the OBI was 90 00:04:20,640 --> 00:04:21,800 Speaker 1: set up in twenty ten. 91 00:04:22,000 --> 00:04:24,000 Speaker 2: So is that how big mistake do you think? Like 92 00:04:24,160 --> 00:04:26,880 Speaker 2: not trying to kind of put the country's finances on 93 00:04:26,880 --> 00:04:29,039 Speaker 2: a more stable foot thing and find public services. But 94 00:04:29,279 --> 00:04:31,320 Speaker 2: she just didn't give herself enough room for maneuver in 95 00:04:31,320 --> 00:04:32,560 Speaker 2: the world we're in now, I. 96 00:04:32,520 --> 00:04:36,599 Speaker 1: Think I think that was that was clearly a risk, 97 00:04:36,600 --> 00:04:39,960 Speaker 1: and OBR clearly flagged that risk in the in the 98 00:04:39,960 --> 00:04:43,599 Speaker 1: budget in October, and I do think that was an error. 99 00:04:43,640 --> 00:04:45,120 Speaker 1: I mean, if she had gone with the sort of 100 00:04:45,160 --> 00:04:48,520 Speaker 1: more traditional levels of headroom, which would be twenty five 101 00:04:48,800 --> 00:04:51,600 Speaker 1: billion to thirty billion pounds, you know, this was sort 102 00:04:51,640 --> 00:04:57,040 Speaker 1: of you know, pre twenty nineteen levels, then you know 103 00:04:58,040 --> 00:05:00,279 Speaker 1: this would not have eroded. She would have roaded half 104 00:05:00,279 --> 00:05:02,880 Speaker 1: her headroom. She still have, you know, enough to say 105 00:05:02,880 --> 00:05:05,240 Speaker 1: I can meet my fiscal rules. The whole point about 106 00:05:05,279 --> 00:05:08,599 Speaker 1: the headroom is it's a it's a buffer against unexpected shops. 107 00:05:08,600 --> 00:05:09,840 Speaker 3: If you leave yourself. 108 00:05:10,000 --> 00:05:11,919 Speaker 1: Nothing, which is you know this, as I said, it 109 00:05:11,960 --> 00:05:16,200 Speaker 1: was the third slimmest headroom ever, then you know you 110 00:05:16,240 --> 00:05:20,880 Speaker 1: are exposing your rules to movements in markets like this, 111 00:05:21,120 --> 00:05:22,920 Speaker 1: and you know, if you're saying that, you know what 112 00:05:22,960 --> 00:05:25,520 Speaker 1: you're trying to provide is fiscal stability on which you 113 00:05:25,560 --> 00:05:29,920 Speaker 1: can then build your growth program. And you've created such 114 00:05:30,000 --> 00:05:33,120 Speaker 1: a such a small buffer that you end up creating 115 00:05:33,160 --> 00:05:36,400 Speaker 1: policy instability because nobody knows how you're going to fill 116 00:05:36,440 --> 00:05:39,159 Speaker 1: this hole. Should markets move against you, you may have 117 00:05:39,200 --> 00:05:40,960 Speaker 1: to raise taxes, you may have to do spending cuts. 118 00:05:41,160 --> 00:05:44,919 Speaker 1: You know that sort of completely undermines the sort of 119 00:05:45,200 --> 00:05:46,279 Speaker 1: edifice of her project. 120 00:05:46,480 --> 00:05:49,040 Speaker 4: Yes, so basically, you know, if you have a lot 121 00:05:49,080 --> 00:05:52,240 Speaker 4: of pain inflicted by these rapidly rising barring costs, if 122 00:05:52,279 --> 00:05:55,000 Speaker 4: you have razor thin buffers, which is what's happening. So 123 00:05:55,040 --> 00:05:57,360 Speaker 4: the fact that the ten year and the thirty year 124 00:05:57,440 --> 00:06:00,960 Speaker 4: really moved makes it so much more difficult Rachel reeves, 125 00:06:01,080 --> 00:06:03,560 Speaker 4: especially in a week where there's so many bond auctions 126 00:06:03,960 --> 00:06:07,280 Speaker 4: by the UK, does she need to now just find 127 00:06:07,320 --> 00:06:08,520 Speaker 4: extra money at. 128 00:06:08,360 --> 00:06:11,680 Speaker 1: The moment she does. I mean, markets aren't fickle. It 129 00:06:11,720 --> 00:06:14,240 Speaker 1: could all move back. And obviously, you know, we did 130 00:06:14,240 --> 00:06:17,280 Speaker 1: have a big move in just the days after the budget. Actually, 131 00:06:17,320 --> 00:06:19,440 Speaker 1: in fact, her entire headroom was wiped out within about 132 00:06:19,440 --> 00:06:21,479 Speaker 1: three or four days, and then the markets came back 133 00:06:21,520 --> 00:06:25,159 Speaker 1: in and readjusted again and she had much of her 134 00:06:25,200 --> 00:06:29,400 Speaker 1: headroom was restored. And now they're going back again the 135 00:06:29,440 --> 00:06:31,960 Speaker 1: other way and they've taken away even more so she's 136 00:06:32,000 --> 00:06:34,640 Speaker 1: now effectively indeficite. She has made it very clear that 137 00:06:34,640 --> 00:06:36,880 Speaker 1: her fiscal rules are non negotiable, that her iron clad 138 00:06:36,880 --> 00:06:39,920 Speaker 1: fiscal rules. So she is going to have to on 139 00:06:40,000 --> 00:06:42,960 Speaker 1: March the twenty sixth, if nothing else changes, when the 140 00:06:42,960 --> 00:06:45,600 Speaker 1: fiscal update is presented by the OBI, she is going 141 00:06:45,640 --> 00:06:49,400 Speaker 1: to have to have shown that she is repairing to 142 00:06:49,440 --> 00:06:53,040 Speaker 1: some degree or replenishing the full ten billion of headroom 143 00:06:53,120 --> 00:06:57,039 Speaker 1: she had, and that will require tax rises, it will 144 00:06:57,080 --> 00:07:02,560 Speaker 1: require spending cuts, could require well welfare cuts as well, 145 00:07:02,640 --> 00:07:04,760 Speaker 1: but she's going to have to do something. At the moment, 146 00:07:04,760 --> 00:07:07,480 Speaker 1: they're sort of indicating that. You know, there's the spending 147 00:07:07,480 --> 00:07:10,400 Speaker 1: review coming in June, and there the indication is that 148 00:07:10,440 --> 00:07:13,640 Speaker 1: they'd rather do it through just trimming spending. 149 00:07:13,760 --> 00:07:15,800 Speaker 2: I mean, as you're describing it. Therefore, we're talking about 150 00:07:15,800 --> 00:07:18,360 Speaker 2: the kind of the buffeting of this government by by 151 00:07:18,440 --> 00:07:19,960 Speaker 2: the markets. And you've got a story out and your 152 00:07:20,000 --> 00:07:22,160 Speaker 2: first paragraph you say, six months into her job, her 153 00:07:22,200 --> 00:07:23,320 Speaker 2: project is close. 154 00:07:23,080 --> 00:07:26,480 Speaker 3: To being in tatters. How did it go so wrong 155 00:07:26,760 --> 00:07:27,239 Speaker 3: so quickly? 156 00:07:27,320 --> 00:07:29,120 Speaker 2: You know, they talk so much in the election campaign 157 00:07:29,120 --> 00:07:31,560 Speaker 2: about stability, fixing the foundation of the economy. 158 00:07:32,000 --> 00:07:33,720 Speaker 3: Is it external shocks here? 159 00:07:33,840 --> 00:07:36,320 Speaker 2: Is it what's going on globally or is the blame 160 00:07:36,400 --> 00:07:38,840 Speaker 2: really to be do we need to point the thing 161 00:07:38,880 --> 00:07:40,200 Speaker 2: of really at her and her policies. 162 00:07:40,400 --> 00:07:42,120 Speaker 1: I mean, there's a bit of both. But the I mean, 163 00:07:42,240 --> 00:07:44,920 Speaker 1: the reason why that the project is, you know, in 164 00:07:45,000 --> 00:07:49,640 Speaker 1: deep trouble is because the entire project is based on growth, 165 00:07:50,160 --> 00:07:54,440 Speaker 1: generating the returns that will deliver the public finance, the 166 00:07:54,480 --> 00:07:56,680 Speaker 1: improvement in public finances so that you know, you know, 167 00:07:56,880 --> 00:07:59,280 Speaker 1: basically the debt coming under control. Also all of the 168 00:07:59,280 --> 00:08:01,840 Speaker 1: money for public services. I mean, she did forty billion 169 00:08:01,840 --> 00:08:04,160 Speaker 1: of tax rises, which was you know, the fundamental way 170 00:08:04,160 --> 00:08:08,520 Speaker 1: in which we fixed the public services, and that's the goal. 171 00:08:08,800 --> 00:08:09,400 Speaker 3: But then. 172 00:08:10,720 --> 00:08:13,160 Speaker 1: Because of the Manifesto pledges that you couldn't just do 173 00:08:13,240 --> 00:08:16,400 Speaker 1: broad based tax rises, she's had to effectively put it 174 00:08:16,480 --> 00:08:19,480 Speaker 1: all on business employer, you know, through the payroll tax, 175 00:08:19,520 --> 00:08:23,400 Speaker 1: which is then causing uncertainty and problems for business about 176 00:08:23,440 --> 00:08:25,760 Speaker 1: how that then comes through the pipe. Will it come 177 00:08:25,800 --> 00:08:28,800 Speaker 1: through in higher prices so consumers a lot to pay 178 00:08:28,840 --> 00:08:32,400 Speaker 1: more and that's inflationary. Will it come through in squeezing wages? 179 00:08:32,600 --> 00:08:36,200 Speaker 1: I mean, there was these there's been a combination of 180 00:08:36,240 --> 00:08:41,520 Speaker 1: sort of missteps because it's not clear exactly why, but 181 00:08:41,520 --> 00:08:43,760 Speaker 1: obviously they were traps set by the Tory Party during 182 00:08:43,800 --> 00:08:48,319 Speaker 1: the election and then and then subsequent decisions that were made. 183 00:08:48,960 --> 00:08:53,199 Speaker 1: But you know, ultimately, if she doesn't get the growth, 184 00:08:53,960 --> 00:08:55,760 Speaker 1: it's going to be very difficult to fix the public 185 00:08:55,800 --> 00:08:58,200 Speaker 1: services and all the pledges she's made on not putting 186 00:08:58,280 --> 00:09:01,480 Speaker 1: taxes on working people, you know, that may have to 187 00:09:01,480 --> 00:09:04,319 Speaker 1: be broken in the worst case scenario. And so the 188 00:09:05,160 --> 00:09:07,520 Speaker 1: project does begin to look like it's can. 189 00:09:07,320 --> 00:09:10,280 Speaker 4: Unravel, and I think it's it's a good reminder that 190 00:09:10,679 --> 00:09:13,000 Speaker 4: the UK is a small, open economy and I think 191 00:09:13,000 --> 00:09:15,160 Speaker 4: Mark Carney had said, you know, realies on the kindness 192 00:09:15,160 --> 00:09:19,560 Speaker 4: of strangers. This is an economy that's extremely dependent because 193 00:09:19,600 --> 00:09:23,920 Speaker 4: of the amount of debt on foreign buyers of guilt. 194 00:09:24,600 --> 00:09:27,280 Speaker 1: Which it's not just the debt actually, it's also that 195 00:09:27,320 --> 00:09:29,599 Speaker 1: we have a we have a current account deficit to 196 00:09:29,679 --> 00:09:32,760 Speaker 1: our trade position, so just paying to pay our way 197 00:09:32,800 --> 00:09:35,080 Speaker 1: in the world, we require, you know, a lot of 198 00:09:35,120 --> 00:09:37,880 Speaker 1: money from foreign for foreign investors into the UK. 199 00:09:37,960 --> 00:09:38,520 Speaker 3: So we've got this. 200 00:09:38,760 --> 00:09:40,960 Speaker 1: I mean in economics they call it, they talk about 201 00:09:41,000 --> 00:09:43,400 Speaker 1: the twin deficit of the budget deficit and the current 202 00:09:43,400 --> 00:09:46,199 Speaker 1: account deficits. So the government cannot find it itself without 203 00:09:46,480 --> 00:09:49,640 Speaker 1: the kind of strange kindness of strangers that those overseas investors, 204 00:09:49,920 --> 00:09:52,160 Speaker 1: and you know, just in general, like business and the 205 00:09:52,200 --> 00:09:55,320 Speaker 1: way that the economy operates, it also needs that money 206 00:09:55,400 --> 00:09:59,080 Speaker 1: from foreign investment as well. So if we if we 207 00:09:59,160 --> 00:10:02,400 Speaker 1: spook those foreign investors, they either will take their money 208 00:10:02,400 --> 00:10:03,880 Speaker 1: away or they'll say we want to beat which we 209 00:10:03,920 --> 00:10:05,400 Speaker 1: want to charge us a bit of a premium. And 210 00:10:05,840 --> 00:10:08,240 Speaker 1: that's what's happening now because that's why we're seeing those 211 00:10:08,280 --> 00:10:09,240 Speaker 1: borrowing costs going up. 212 00:10:09,640 --> 00:10:11,840 Speaker 2: What's also struck me this week, phil is is kind 213 00:10:11,840 --> 00:10:14,040 Speaker 2: of what's going on in the real economy. We've had 214 00:10:14,080 --> 00:10:17,080 Speaker 2: trading updates from some of the big bell Weather retailers 215 00:10:17,400 --> 00:10:20,200 Speaker 2: talking about Christmas, you know, and it's this contrast because 216 00:10:20,200 --> 00:10:21,880 Speaker 2: a lot of them have said, haven't they looked, so 217 00:10:22,000 --> 00:10:25,800 Speaker 2: we had not a bad performance, next Mark Suspenser's sales up, 218 00:10:26,120 --> 00:10:28,559 Speaker 2: But then they've thought they've had these very gloomy outlooks 219 00:10:28,559 --> 00:10:30,800 Speaker 2: and said, look, we're being piled on with extra costs 220 00:10:30,840 --> 00:10:37,319 Speaker 2: from wages from the National insurance hike, uncertainty in the future, 221 00:10:38,200 --> 00:10:40,600 Speaker 2: and that has caused the share prices to take to 222 00:10:40,640 --> 00:10:43,600 Speaker 2: take fright a bit. So it is underneath the hood 223 00:10:43,600 --> 00:10:46,800 Speaker 2: of the economy. There's a lot of trepidation from business 224 00:10:47,240 --> 00:10:49,559 Speaker 2: and is that feeding through to people thinking, well, growth 225 00:10:49,640 --> 00:10:52,520 Speaker 2: is going to be really challenging, and that makes Rachel 226 00:10:52,559 --> 00:10:54,600 Speaker 2: Reeves's whole project much harder to achieve. 227 00:10:54,720 --> 00:10:58,120 Speaker 1: Yeah, there's there's definitely a sentiment issue going on in 228 00:10:58,160 --> 00:10:59,960 Speaker 1: the business world. I mean, in a way, I do 229 00:11:00,080 --> 00:11:03,800 Speaker 1: look back to the post Brexit where there was absolutely 230 00:11:03,840 --> 00:11:08,160 Speaker 1: ridiculous level of uncertainty, and you know, we've got a 231 00:11:08,280 --> 00:11:10,880 Speaker 1: very small fraction of that level of uncertainty coursed by 232 00:11:10,880 --> 00:11:14,079 Speaker 1: all these Knix rises in the national living wage going up, 233 00:11:14,800 --> 00:11:17,400 Speaker 1: and obviously what happened is that business learned to live 234 00:11:17,440 --> 00:11:19,760 Speaker 1: with that uncertainty, and this will be much easier to 235 00:11:19,800 --> 00:11:21,880 Speaker 1: learn to live with than Brexit. So I'm a bit 236 00:11:21,960 --> 00:11:26,760 Speaker 1: cautious about the amount of damage that all this will 237 00:11:26,840 --> 00:11:31,559 Speaker 1: ultimately do to the growth potential. But certainly businesses are 238 00:11:32,120 --> 00:11:34,280 Speaker 1: saying that they're worried and that's it's and it's not 239 00:11:34,440 --> 00:11:37,520 Speaker 1: helping sentiment. So Labor does have a growth strategy, which 240 00:11:37,559 --> 00:11:40,199 Speaker 1: is this big investment plan and basically the reform agenda 241 00:11:40,240 --> 00:11:43,880 Speaker 1: to get planning obstacles removed. Probably with that it's a 242 00:11:43,920 --> 00:11:46,680 Speaker 1: sort of temporal issue. You've got in the short term, 243 00:11:46,720 --> 00:11:48,800 Speaker 1: you've got all these tax rises coming through, which will 244 00:11:49,120 --> 00:11:52,720 Speaker 1: inevitably have some kind of dampening effect on growth, but 245 00:11:52,760 --> 00:11:55,160 Speaker 1: then the investment comes through later, so you can then 246 00:11:55,240 --> 00:11:57,840 Speaker 1: get the growth later on. And so the Office Budget 247 00:11:57,880 --> 00:12:02,120 Speaker 1: Responsibility is forecasting more to mystic growth trajectory in the 248 00:12:02,200 --> 00:12:04,760 Speaker 1: back towards the back end of the forecast. But in 249 00:12:04,800 --> 00:12:08,760 Speaker 1: the short term we're obviously facing this particular conundrum. And 250 00:12:08,840 --> 00:12:12,200 Speaker 1: so people, I mean markets are looking at the immediate 251 00:12:12,440 --> 00:12:16,560 Speaker 1: what's happening immediately, and you know, the budget forecasters are 252 00:12:16,600 --> 00:12:20,040 Speaker 1: looking what's happening what's longer term, And obviously the government 253 00:12:20,080 --> 00:12:22,559 Speaker 1: is trying to think has always been trying to think 254 00:12:22,600 --> 00:12:24,320 Speaker 1: longer term. It's a question of whether they can get 255 00:12:24,360 --> 00:12:27,160 Speaker 1: to that longer term thing without being completely disrupted by 256 00:12:27,160 --> 00:12:27,880 Speaker 1: the market moves. 257 00:12:28,000 --> 00:12:29,840 Speaker 4: It, Phil is as soon as you have, you know, 258 00:12:30,040 --> 00:12:33,360 Speaker 4: big market moves and the market it's also almost a 259 00:12:33,440 --> 00:12:36,480 Speaker 4: self fulfilling prophecy, right, And I know you wrote about 260 00:12:36,480 --> 00:12:39,240 Speaker 4: the fact that you have these big move in borrowing 261 00:12:39,280 --> 00:12:43,320 Speaker 4: costs in guilds but also pound and so you just 262 00:12:43,360 --> 00:12:45,880 Speaker 4: have to make sure that investors don't completely lose faith. 263 00:12:46,240 --> 00:12:48,680 Speaker 4: There's been a lot written about the speed of the 264 00:12:48,720 --> 00:12:51,360 Speaker 4: moves and the fact that it was a little bit 265 00:12:51,520 --> 00:12:54,080 Speaker 4: like the Lost Trust mini budget that was like a 266 00:12:54,080 --> 00:12:58,520 Speaker 4: horror show. Is the market much better placed now in 267 00:12:58,600 --> 00:13:01,360 Speaker 4: terms of being strengthened since that budget or is it 268 00:13:01,360 --> 00:13:03,280 Speaker 4: more like the nineteen seventies deck crisis. 269 00:13:03,720 --> 00:13:06,880 Speaker 1: Well, Martin Will's the former Bank of England rate setter 270 00:13:06,920 --> 00:13:10,040 Speaker 1: who's drawn this nineteen seventy six analogy when the UK 271 00:13:10,120 --> 00:13:12,440 Speaker 1: went to the IMF for a three point nine billion 272 00:13:12,480 --> 00:13:18,040 Speaker 1: dollar loan. Obviously, the the issue here is whether you 273 00:13:18,080 --> 00:13:21,160 Speaker 1: know markets aren't going to basically just turn against the 274 00:13:21,280 --> 00:13:26,000 Speaker 1: UK entirely. I mean, I I'd be cautious to say 275 00:13:26,040 --> 00:13:30,680 Speaker 1: I either scenario is the outlook at the moment, because 276 00:13:30,720 --> 00:13:34,240 Speaker 1: we had huge short term movements and they and they 277 00:13:34,360 --> 00:13:38,680 Speaker 1: kind of catalyzed into massive catastrophes through the through the 278 00:13:38,800 --> 00:13:40,440 Speaker 1: LDI crisis that we had. 279 00:13:40,559 --> 00:13:43,000 Speaker 3: We're having smaller moves now. It's kind of aworderly. 280 00:13:43,160 --> 00:13:44,679 Speaker 1: I mean, as what I think a Deutsche Bank ever 281 00:13:44,840 --> 00:13:49,120 Speaker 1: noted the foreign exchange desks suggested or they were saying 282 00:13:49,120 --> 00:13:51,320 Speaker 1: that in a way, the fact that this is not 283 00:13:51,360 --> 00:13:54,360 Speaker 1: an acute crisis, like Liz trust is kind of worse 284 00:13:54,360 --> 00:13:57,160 Speaker 1: because it's actually saying people are genuinely worried about some 285 00:13:57,200 --> 00:14:00,280 Speaker 1: of the underlying underlying dynamics in the UK. It of me, 286 00:14:00,600 --> 00:14:03,240 Speaker 1: but it does mean, It does mean that you can 287 00:14:03,360 --> 00:14:06,280 Speaker 1: get this kind of chronic picture for you know, the 288 00:14:06,400 --> 00:14:09,240 Speaker 1: UK trajectory, which can which which can then become a 289 00:14:09,280 --> 00:14:12,480 Speaker 1: dominant narrative. But that's not as dangerous in terms of 290 00:14:12,520 --> 00:14:17,240 Speaker 1: immediate risks as a kind of complete acute catastrophe overnight, 291 00:14:17,280 --> 00:14:20,320 Speaker 1: which can absolutely as we saw in twenty twenty two, 292 00:14:20,600 --> 00:14:22,320 Speaker 1: you know, destroy a premiership. 293 00:14:22,920 --> 00:14:24,880 Speaker 2: Yeah, in some ways, are we still kind of living 294 00:14:24,920 --> 00:14:27,080 Speaker 2: I mean, you know, after Richison I took over and 295 00:14:27,160 --> 00:14:29,920 Speaker 2: Jeremy Hunt, they talked a lot about repairing the damage 296 00:14:29,920 --> 00:14:34,120 Speaker 2: to Britain's reputation internationally from the trust to backle and 297 00:14:34,240 --> 00:14:36,600 Speaker 2: you know what was it called the Moron premium on 298 00:14:36,680 --> 00:14:38,360 Speaker 2: not on UK bonds and all that, and that seems 299 00:14:38,360 --> 00:14:41,480 Speaker 2: to have worked. But is the revival of these questions. 300 00:14:41,480 --> 00:14:44,000 Speaker 2: Are we still kind of seeing the legacy of that 301 00:14:44,240 --> 00:14:46,400 Speaker 2: shaking of the foundational belief that Britain is a good 302 00:14:46,400 --> 00:14:47,160 Speaker 2: place to invest. 303 00:14:47,600 --> 00:14:50,200 Speaker 1: At the moment, you can't help but think that, right, 304 00:14:50,280 --> 00:14:53,640 Speaker 1: I mean, the UK has historically been a safe haven, 305 00:14:53,840 --> 00:14:58,800 Speaker 1: and suddenly you have that trust situation where you know, 306 00:14:59,000 --> 00:15:01,760 Speaker 1: we can mess things up so badly that it causes 307 00:15:01,960 --> 00:15:04,880 Speaker 1: a massive market panic, and you know, for a brief period, 308 00:15:05,040 --> 00:15:07,360 Speaker 1: you know, George Osborne in twenty ten used to say, 309 00:15:07,400 --> 00:15:09,720 Speaker 1: We've got to worry about our you know, our sovereign 310 00:15:09,720 --> 00:15:12,560 Speaker 1: position because we you know, there's a Greek debt crisis, 311 00:15:12,600 --> 00:15:14,520 Speaker 1: and we could be like Greece. And it always seemed 312 00:15:14,560 --> 00:15:16,320 Speaker 1: like a lot of nonsense and a lot of politics, 313 00:15:16,320 --> 00:15:18,800 Speaker 1: and suddenly, you know, for a brief two week period, 314 00:15:18,880 --> 00:15:20,560 Speaker 1: we kind of did look a little bit like Greece, 315 00:15:20,560 --> 00:15:23,760 Speaker 1: and so that might have changed people's the way people 316 00:15:23,840 --> 00:15:25,880 Speaker 1: view the UK. So I don't think it definitely don't 317 00:15:25,880 --> 00:15:27,720 Speaker 1: think it has helped. The problem with labor is that 318 00:15:27,800 --> 00:15:30,080 Speaker 1: labor is always you know, starting off on the back 319 00:15:30,080 --> 00:15:33,040 Speaker 1: foot with markets, and financial markets will be less sympathetic 320 00:15:33,040 --> 00:15:35,840 Speaker 1: to policies that they undertake. So should the Tories have 321 00:15:35,840 --> 00:15:38,240 Speaker 1: done exactly the same thing, you could be pretty sure 322 00:15:38,280 --> 00:15:42,040 Speaker 1: that they would not be getting as sharp a backlashes 323 00:15:42,480 --> 00:15:47,080 Speaker 1: as labor are, just because of the history. Really, so 324 00:15:47,240 --> 00:15:49,200 Speaker 1: it does make it just does make life a little 325 00:15:49,200 --> 00:15:50,320 Speaker 1: bit more difficult for Reeves and co. 326 00:15:51,120 --> 00:15:54,160 Speaker 4: So feel going forward because of the market moves. Basically 327 00:15:54,200 --> 00:15:57,680 Speaker 4: this week it basically wiped out the spending buffer of 328 00:15:57,760 --> 00:16:01,120 Speaker 4: around nine point nine billion pounds that Rachel does it, 329 00:16:01,120 --> 00:16:04,360 Speaker 4: I mean, if it continues, you she'll have to find 330 00:16:04,360 --> 00:16:07,160 Speaker 4: extra money. Do we have an emergency budget budget? Is 331 00:16:07,200 --> 00:16:09,160 Speaker 4: it too soon to say? And if we do have 332 00:16:09,360 --> 00:16:12,360 Speaker 4: something that she needs to do quickly, She's ruled out 333 00:16:12,440 --> 00:16:15,080 Speaker 4: tax hikes, so does she just have to cut spending? 334 00:16:16,000 --> 00:16:18,360 Speaker 1: Yeah, So that in the moment they're doing the spending 335 00:16:18,360 --> 00:16:22,400 Speaker 1: review conversation, So the departments are seeing Darren Jones at 336 00:16:22,400 --> 00:16:26,040 Speaker 1: the Treasury. He's the chief secretary who helps set their budgets, 337 00:16:27,320 --> 00:16:30,720 Speaker 1: and the message effectively is that the spending envelope, which 338 00:16:30,760 --> 00:16:33,680 Speaker 1: was set in the October budget cannot go higher, but 339 00:16:33,760 --> 00:16:36,200 Speaker 1: it certainly can be smaller, and if they need to 340 00:16:36,240 --> 00:16:39,160 Speaker 1: find a few billion quit they can just basically trim 341 00:16:39,200 --> 00:16:41,160 Speaker 1: it from the sort of you know, I think it's 342 00:16:41,360 --> 00:16:44,240 Speaker 1: about seven hundred billion pounds of departmental spending and your 343 00:16:44,280 --> 00:16:47,160 Speaker 1: departmental spending, so you know, in that scheme of things, 344 00:16:47,200 --> 00:16:52,440 Speaker 1: it's not an awful lot of money. Personally, I would 345 00:16:52,560 --> 00:16:55,360 Speaker 1: I would not be surprised if we see some fiddling 346 00:16:55,400 --> 00:16:57,680 Speaker 1: of the aid budget, which has already been dropped from 347 00:16:57,680 --> 00:16:59,720 Speaker 1: two point seven to zero point five, and they obviously 348 00:16:59,720 --> 00:17:02,280 Speaker 1: need to increased defense spending. So you know, they can 349 00:17:02,400 --> 00:17:04,720 Speaker 1: some I don't know if they can change the accounting 350 00:17:04,760 --> 00:17:07,040 Speaker 1: treatments and move more of it, you know, just move 351 00:17:07,119 --> 00:17:09,600 Speaker 1: money out of out of aid into defense. But they'll 352 00:17:09,640 --> 00:17:12,239 Speaker 1: be looking for painless ways of doing this because one 353 00:17:12,240 --> 00:17:14,760 Speaker 1: of the problems that you hear from you know, investors 354 00:17:14,960 --> 00:17:18,359 Speaker 1: is that in a market and financial market investors, is 355 00:17:18,720 --> 00:17:22,200 Speaker 1: that there is a there was potentially a credibility problem 356 00:17:22,280 --> 00:17:25,280 Speaker 1: if they just try and cut departmental spending, because that 357 00:17:25,400 --> 00:17:30,520 Speaker 1: was exactly the fiscal fiction that nobody nobody believed that 358 00:17:30,600 --> 00:17:34,520 Speaker 1: the spending trajectories from the March budget. When Hunt did 359 00:17:34,520 --> 00:17:37,280 Speaker 1: his final budget for the Tories, no one believed those 360 00:17:37,280 --> 00:17:40,879 Speaker 1: spending trajectories. And that's what Labor had to fix, and 361 00:17:40,960 --> 00:17:43,200 Speaker 1: that's what the forty billion pounds of tax risers was for. 362 00:17:43,359 --> 00:17:45,800 Speaker 1: If you go back, if she pushes back and says, actually, 363 00:17:45,800 --> 00:17:48,320 Speaker 1: now we're going to do We're going to cut those 364 00:17:48,600 --> 00:17:52,320 Speaker 1: budgets from where we've put them in October, the markets 365 00:17:52,359 --> 00:17:54,560 Speaker 1: may just think this is nonsense. You know, it's another 366 00:17:54,600 --> 00:17:59,280 Speaker 1: physical fiction your credibility. We're not gonna that's not gonna wash. 367 00:17:59,359 --> 00:18:01,960 Speaker 1: And we're going to still turn against you because what 368 00:18:01,960 --> 00:18:05,119 Speaker 1: you're doing is trying to trick us. And I think, 369 00:18:05,280 --> 00:18:06,840 Speaker 1: you know, we've got to this point where you just 370 00:18:06,880 --> 00:18:10,520 Speaker 1: can't trick the markets any any longer. They're kind of 371 00:18:11,080 --> 00:18:12,280 Speaker 1: they've reached the end of the tether. 372 00:18:12,440 --> 00:18:16,160 Speaker 2: Yeah, we've so obviously we've heard some you know, attempts 373 00:18:16,200 --> 00:18:18,719 Speaker 2: to calm the markets, and you know, the Chief Treasury 374 00:18:18,760 --> 00:18:20,399 Speaker 2: is saying that, you know, the market moves are all 375 00:18:20,440 --> 00:18:22,840 Speaker 2: in all this stuff. But on the politics of this 376 00:18:22,920 --> 00:18:25,560 Speaker 2: as well. The chance has gone off to China, hasn't 377 00:18:25,600 --> 00:18:28,320 Speaker 2: she on on a trip, and some discussion about. 378 00:18:28,080 --> 00:18:29,119 Speaker 3: Whether that was the right thing to do. 379 00:18:29,240 --> 00:18:31,760 Speaker 2: I hesitate a little bit of what I'm going to 380 00:18:31,760 --> 00:18:34,280 Speaker 2: say anyway, about remembering quasi quat and going off to 381 00:18:34,359 --> 00:18:36,520 Speaker 2: Washington at the height of the trust to back and 382 00:18:36,600 --> 00:18:38,680 Speaker 2: of course on his way back he didn't have a job. 383 00:18:38,720 --> 00:18:41,160 Speaker 2: I don't think I'm assuming you don't think we're quite 384 00:18:41,160 --> 00:18:43,720 Speaker 2: there yet, but they you know, is it wise the 385 00:18:43,800 --> 00:18:45,400 Speaker 2: chance to fly to the other side of the world 386 00:18:45,400 --> 00:18:46,840 Speaker 2: when the markets are convulsing like this? 387 00:18:48,040 --> 00:18:51,680 Speaker 1: I mean I don't think it's I don't think I 388 00:18:51,680 --> 00:18:53,760 Speaker 1: don't think it's a problem. It's because it's not acute. 389 00:18:53,760 --> 00:18:57,080 Speaker 1: It's because it's not like trusts. I don't think it's comparable. 390 00:18:57,080 --> 00:19:01,520 Speaker 1: I mean, actually that nineteen seventy six analogy is it's 391 00:19:01,560 --> 00:19:03,800 Speaker 1: similar because Dennis Healy was on his way to Washington, 392 00:19:03,840 --> 00:19:06,520 Speaker 1: he was the chancellor in nineteen seventy six, and he 393 00:19:06,560 --> 00:19:08,520 Speaker 1: had to turn around at the airport and head back 394 00:19:09,000 --> 00:19:11,040 Speaker 1: to the Labor Party conference at the time and tell 395 00:19:11,080 --> 00:19:12,720 Speaker 1: them that they're going to have to tighten their belts. 396 00:19:12,720 --> 00:19:17,440 Speaker 1: But the Yeah, I think she should go to China 397 00:19:17,520 --> 00:19:19,280 Speaker 1: and she should be looking, you know, they should be 398 00:19:19,320 --> 00:19:22,160 Speaker 1: looking beyond this because this is this is something which 399 00:19:22,520 --> 00:19:26,760 Speaker 1: can be addressed in coming days. Obviously, you know, on Monday, 400 00:19:26,920 --> 00:19:31,320 Speaker 1: if the market's convulsed massively, she should be back in 401 00:19:31,400 --> 00:19:32,320 Speaker 1: time to deal with that. 402 00:19:32,400 --> 00:19:35,080 Speaker 2: But you know it's I mean, sorry, just come back 403 00:19:35,080 --> 00:19:37,440 Speaker 2: to your story field. You know, the project is close 404 00:19:37,480 --> 00:19:39,320 Speaker 2: to being in tatus. If it becomes to be in tatus, 405 00:19:39,320 --> 00:19:41,720 Speaker 2: can she can our first female chances to eight hundred 406 00:19:41,760 --> 00:19:43,920 Speaker 2: years survive in this job much longer has she become 407 00:19:43,920 --> 00:19:44,359 Speaker 2: a victims. 408 00:19:44,480 --> 00:19:45,120 Speaker 3: It's a good question. 409 00:19:45,440 --> 00:19:47,760 Speaker 1: One question I've been asking myself if everything I mean, 410 00:19:47,760 --> 00:19:50,879 Speaker 1: if the markets go app to turn absolutely violently against 411 00:19:51,520 --> 00:19:54,159 Speaker 1: them and they have to rip up their manifesto commitment 412 00:19:54,200 --> 00:19:56,240 Speaker 1: and actually start raising taxes. I mean, this is an 413 00:19:56,240 --> 00:19:58,679 Speaker 1: extreme scenario which I don't think anybody thinks is going 414 00:19:58,720 --> 00:20:02,920 Speaker 1: to happen, but it should that happen. Would she would 415 00:20:02,920 --> 00:20:05,400 Speaker 1: she would she be the sacrificial lamb again? 416 00:20:05,440 --> 00:20:05,879 Speaker 3: Yeah, I don't know. 417 00:20:05,920 --> 00:20:08,920 Speaker 1: You look back to nineteen seventy six Dennis Healy. He 418 00:20:09,000 --> 00:20:11,920 Speaker 1: survived as chancellor for another three years. Labour doesn't have 419 00:20:12,280 --> 00:20:14,639 Speaker 1: a track record of chopping and changing like the Tories 420 00:20:14,720 --> 00:20:16,960 Speaker 1: do with their leaders. You know several know how many 421 00:20:17,359 --> 00:20:21,680 Speaker 1: chancells it was, But I mean who's and who's there? 422 00:20:21,680 --> 00:20:25,639 Speaker 1: Who would who would replace her? I mean, if Cooper 423 00:20:26,080 --> 00:20:29,359 Speaker 1: might be a reasonable choice, I mean the others. I 424 00:20:29,359 --> 00:20:33,480 Speaker 1: mean Analyst Dodds was Kestalmer's first choice for chancellor in opposition, 425 00:20:33,560 --> 00:20:36,719 Speaker 1: but he replaced her. You know, Ed Muliband obviously he's 426 00:20:36,720 --> 00:20:40,119 Speaker 1: a former Labor leader, so he potentially could do it, 427 00:20:40,160 --> 00:20:43,640 Speaker 1: but you know, it's not clear that there's anyone better 428 00:20:43,640 --> 00:20:44,600 Speaker 1: than Rachel Reads. 429 00:20:45,080 --> 00:20:50,119 Speaker 4: Bill, Thank you so much, Thanks very much, Thanks for 430 00:20:50,160 --> 00:20:52,520 Speaker 4: listening to the Sponus edition of the in the City 431 00:20:52,560 --> 00:20:55,520 Speaker 4: podcast from Bloomberg. It was hosted by me Francine Lackwell 432 00:20:55,600 --> 00:20:59,040 Speaker 4: with Dave Merritt. It was produced by Somersati, a production 433 00:20:59,119 --> 00:21:02,160 Speaker 4: support from Moses and m and sound designed by Blake Maples. 434 00:21:02,480 --> 00:21:06,399 Speaker 4: Special thanks to Phil Aldrich. Please subscribe, rate, and review 435 00:21:06,640 --> 00:21:08,200 Speaker 4: wherever you listen to podcasts.