WEBVTT - Bonus In the City: Why Are UK Assets Spiraling Now? 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.560 --> 0:00:11.479 Then comparison are being made to this trust But is 0:00:11.520 --> 0:00:12.880 this more callahan than trusts? 0:00:13.039 --> 0:00:14.880 Is this more seventy six than twenty two? 0:00:15.160 --> 0:00:15.640 Possibly? 0:00:16.079 --> 0:00:18.040 What we are seeing in the UK, guy is a 0:00:18.079 --> 0:00:19.319 train break in slow motion. 0:00:22.440 --> 0:00:24.959 Welcome to the City of London, the city of the 0:00:25.000 --> 0:00:26.599 City of the City of London. 0:00:28.480 --> 0:00:32.240 Then we need mind the gap between the and the 0:00:32.360 --> 0:00:35.800 PA the financial hearts of the country. 0:00:39.600 --> 0:00:41.000 The city, the city. 0:00:41.280 --> 0:00:42.640 Welcome to in the city. 0:00:44.720 --> 0:00:49.560 Then clear of the doors. Pe So, Dave, we're putting 0:00:49.600 --> 0:00:52.400 a bonus episode out today because there's been a lot 0:00:52.400 --> 0:00:54.840 of turmoil for UK assets. Now this is probably not 0:00:54.920 --> 0:00:57.520 only a UK story, but they're definitely at the forefront 0:00:57.560 --> 0:01:01.000 of this global route sparked by I guess latest threats 0:01:01.000 --> 0:01:04.360 of tariffs and worries that inflation will remain elevated in 0:01:04.400 --> 0:01:05.880 the US for longer than expected. 0:01:06.880 --> 0:01:08.400 Yeah, yeah, absolutely. 0:01:08.480 --> 0:01:10.040 I mean, as I'm sitting here in New York and 0:01:10.400 --> 0:01:13.360 you know, there are echoes of a few years ago. 0:01:13.520 --> 0:01:16.920 Because the UK term on in the market is breaking through. 0:01:16.959 --> 0:01:19.120 People in New York and around the world are asking 0:01:19.400 --> 0:01:21.400 what's going on with the UK assets? Why invest It 0:01:21.480 --> 0:01:25.479 seem to be fleeing. We're seeing falls and stocks falls 0:01:25.480 --> 0:01:28.400 and bonds and the pound at the same time. All 0:01:28.440 --> 0:01:30.800 of that adds up to a real lack of confidence 0:01:31.319 --> 0:01:33.640 in the UK as a place to invest. 0:01:34.200 --> 0:01:36.440 Yeah, and of course the global bond sell off is 0:01:36.480 --> 0:01:40.559 unnerving for many reasons. But of course it changes expectations 0:01:40.760 --> 0:01:44.520 on government's fiscal operations. So we're bringing you the special episode, 0:01:44.680 --> 0:01:47.240 this emergency edition of In the City to try and 0:01:47.360 --> 0:01:49.840 understand what it all means for the Chancellor of Rachel Reeves. 0:01:50.000 --> 0:01:52.280 I'm frontin Laqua in the London studio and. 0:01:52.240 --> 0:01:53.920 I'm David Merritt here in New York. 0:01:54.160 --> 0:01:56.840 And today we're discussing how the UK bond sell off 0:01:56.880 --> 0:02:00.160 is putting Rachel reeves economic projects on the brink with 0:02:00.240 --> 0:02:03.160 us Phil aldrich Or, senior reporter covering the UK economy 0:02:03.440 --> 0:02:05.840 and of course a regular on in the City. Phil, 0:02:05.840 --> 0:02:07.840 thank you so much for joining us. It's been a wild, 0:02:08.040 --> 0:02:09.840 wild week for UK assets. 0:02:09.960 --> 0:02:11.280 Why that is the question. 0:02:11.320 --> 0:02:14.240 Why now it's a bit of a quandary. And obviously 0:02:14.240 --> 0:02:16.760 what's been happening is, you know, US bond markets have 0:02:16.840 --> 0:02:19.840 been moving. Donald Trump has been spooking people with tariffs. 0:02:19.960 --> 0:02:24.200 So there's this backdrop of sort of less certainty about 0:02:24.280 --> 0:02:29.160 the outlook, and the UK is has been most exposed 0:02:29.520 --> 0:02:31.800 of you know, the major economies to that. We've seen 0:02:31.800 --> 0:02:34.480 this big increase in bond yields, so government boring costs 0:02:34.520 --> 0:02:38.120 are soaring, and the pound is falling, which is indicative 0:02:38.320 --> 0:02:40.560 of you know, capital flight in the UK. So people 0:02:40.560 --> 0:02:43.840 are losing confidence in the UK assets. So why is 0:02:43.880 --> 0:02:47.880 it happening now? It seems that people have well, why 0:02:47.919 --> 0:02:51.120 is it happening, particularly to the UK's people. Will investors 0:02:51.160 --> 0:02:54.639 seem to be sort of taking the making a judgment 0:02:54.720 --> 0:02:59.680 that Reeves's budget isn't going to deliver what is necessary 0:03:00.240 --> 0:03:03.200 to bring the debt on, put the debt on a 0:03:03.240 --> 0:03:07.920 sustainable footing, and to bring inflation down, and so there 0:03:07.960 --> 0:03:11.160 seems to be this kind of this nervousness now about 0:03:11.480 --> 0:03:14.400 the outlook. But having said that, it seems a little 0:03:14.480 --> 0:03:17.240 unfair to put the UK right in the crosshairs of 0:03:17.280 --> 0:03:19.400 all this, given that we do have a we have 0:03:19.440 --> 0:03:23.400 a stable government. You know, by comparison, you might say 0:03:23.440 --> 0:03:25.280 France looks like a bit of a basket case at 0:03:25.280 --> 0:03:27.200 the moment, and yet the UK is the one that's 0:03:27.240 --> 0:03:28.240 really getting it in the neck. 0:03:28.720 --> 0:03:31.200 I mean, Phil, I do remember the conversation we had 0:03:31.200 --> 0:03:34.160 when you came on after the budget and I was 0:03:34.160 --> 0:03:36.280 struck at the time you were you were pretty surprised 0:03:36.280 --> 0:03:38.760 at the scale of the tax risers and the spending. 0:03:39.280 --> 0:03:40.800 It blew through your expectations. 0:03:41.200 --> 0:03:43.440 And you said at the time, I remember clearly we 0:03:43.440 --> 0:03:45.880 talked about this question about the headroom and we talked 0:03:45.880 --> 0:03:48.280 about how there isn't really room for maneuver. 0:03:47.920 --> 0:03:49.280 Here if there's a bit of a shock. 0:03:49.600 --> 0:03:51.120 And of course back then we didn't know that Donald 0:03:51.120 --> 0:03:53.120 Trump was going to win the election, and yet it 0:03:53.240 --> 0:03:56.280 was a big possibility and and you said, this is 0:03:56.320 --> 0:03:59.600 a risky budget. You know, there's there's not room from maneuver, 0:03:59.680 --> 0:04:01.560 and you know, and low it came to pass and 0:04:01.720 --> 0:04:03.680 we've seen more turbinines and markets in the UK has 0:04:03.720 --> 0:04:06.040 really copped it. I mean, I think you called it right, 0:04:06.080 --> 0:04:06.440 didn't you. 0:04:07.880 --> 0:04:09.480 I'll tell you that one. It may have been one 0:04:09.480 --> 0:04:13.400 of the few times I did. But yeah, the thing 0:04:13.480 --> 0:04:15.800 is the headroom is is very thin. It's the third 0:04:15.880 --> 0:04:20.640 smallest headroom the Chancellor has had since the OBI was 0:04:20.640 --> 0:04:21.800 set up in twenty ten. 0:04:22.000 --> 0:04:24.000 So is that how big mistake do you think? Like 0:04:24.160 --> 0:04:26.880 not trying to kind of put the country's finances on 0:04:26.880 --> 0:04:29.039 a more stable foot thing and find public services. But 0:04:29.279 --> 0:04:31.320 she just didn't give herself enough room for maneuver in 0:04:31.320 --> 0:04:32.560 the world we're in now, I. 0:04:32.520 --> 0:04:36.599 Think I think that was that was clearly a risk, 0:04:36.600 --> 0:04:39.960 and OBR clearly flagged that risk in the in the 0:04:39.960 --> 0:04:43.599 budget in October, and I do think that was an error. 0:04:43.640 --> 0:04:45.120 I mean, if she had gone with the sort of 0:04:45.160 --> 0:04:48.520 more traditional levels of headroom, which would be twenty five 0:04:48.800 --> 0:04:51.600 billion to thirty billion pounds, you know, this was sort 0:04:51.640 --> 0:04:57.040 of you know, pre twenty nineteen levels, then you know 0:04:58.040 --> 0:05:00.279 this would not have eroded. She would have roaded half 0:05:00.279 --> 0:05:02.880 her headroom. She still have, you know, enough to say 0:05:02.880 --> 0:05:05.240 I can meet my fiscal rules. The whole point about 0:05:05.279 --> 0:05:08.599 the headroom is it's a it's a buffer against unexpected shops. 0:05:08.600 --> 0:05:09.840 If you leave yourself. 0:05:10.000 --> 0:05:11.919 Nothing, which is you know this, as I said, it 0:05:11.960 --> 0:05:16.200 was the third slimmest headroom ever, then you know you 0:05:16.240 --> 0:05:20.880 are exposing your rules to movements in markets like this, 0:05:21.120 --> 0:05:22.920 and you know, if you're saying that, you know what 0:05:22.960 --> 0:05:25.520 you're trying to provide is fiscal stability on which you 0:05:25.560 --> 0:05:29.920 can then build your growth program. And you've created such 0:05:30.000 --> 0:05:33.120 a such a small buffer that you end up creating 0:05:33.160 --> 0:05:36.400 policy instability because nobody knows how you're going to fill 0:05:36.440 --> 0:05:39.159 this hole. Should markets move against you, you may have 0:05:39.200 --> 0:05:40.960 to raise taxes, you may have to do spending cuts. 0:05:41.160 --> 0:05:44.919 You know that sort of completely undermines the sort of 0:05:45.200 --> 0:05:46.279 edifice of her project. 0:05:46.480 --> 0:05:49.040 Yes, so basically, you know, if you have a lot 0:05:49.080 --> 0:05:52.240 of pain inflicted by these rapidly rising barring costs, if 0:05:52.279 --> 0:05:55.000 you have razor thin buffers, which is what's happening. So 0:05:55.040 --> 0:05:57.360 the fact that the ten year and the thirty year 0:05:57.440 --> 0:06:00.960 really moved makes it so much more difficult Rachel reeves, 0:06:01.080 --> 0:06:03.560 especially in a week where there's so many bond auctions 0:06:03.960 --> 0:06:07.280 by the UK, does she need to now just find 0:06:07.320 --> 0:06:08.520 extra money at. 0:06:08.360 --> 0:06:11.680 The moment she does. I mean, markets aren't fickle. It 0:06:11.720 --> 0:06:14.240 could all move back. And obviously, you know, we did 0:06:14.240 --> 0:06:17.280 have a big move in just the days after the budget. Actually, 0:06:17.320 --> 0:06:19.440 in fact, her entire headroom was wiped out within about 0:06:19.440 --> 0:06:21.479 three or four days, and then the markets came back 0:06:21.520 --> 0:06:25.159 in and readjusted again and she had much of her 0:06:25.200 --> 0:06:29.400 headroom was restored. And now they're going back again the 0:06:29.440 --> 0:06:31.960 other way and they've taken away even more so she's 0:06:32.000 --> 0:06:34.640 now effectively indeficite. She has made it very clear that 0:06:34.640 --> 0:06:36.880 her fiscal rules are non negotiable, that her iron clad 0:06:36.880 --> 0:06:39.920 fiscal rules. So she is going to have to on 0:06:40.000 --> 0:06:42.960 March the twenty sixth, if nothing else changes, when the 0:06:42.960 --> 0:06:45.600 fiscal update is presented by the OBI, she is going 0:06:45.640 --> 0:06:49.400 to have to have shown that she is repairing to 0:06:49.440 --> 0:06:53.040 some degree or replenishing the full ten billion of headroom 0:06:53.120 --> 0:06:57.039 she had, and that will require tax rises, it will 0:06:57.080 --> 0:07:02.560 require spending cuts, could require well welfare cuts as well, 0:07:02.640 --> 0:07:04.760 but she's going to have to do something. At the moment, 0:07:04.760 --> 0:07:07.480 they're sort of indicating that. You know, there's the spending 0:07:07.480 --> 0:07:10.400 review coming in June, and there the indication is that 0:07:10.440 --> 0:07:13.640 they'd rather do it through just trimming spending. 0:07:13.760 --> 0:07:15.800 I mean, as you're describing it. Therefore, we're talking about 0:07:15.800 --> 0:07:18.360 the kind of the buffeting of this government by by 0:07:18.440 --> 0:07:19.960 the markets. And you've got a story out and your 0:07:20.000 --> 0:07:22.160 first paragraph you say, six months into her job, her 0:07:22.200 --> 0:07:23.320 project is close. 0:07:23.080 --> 0:07:26.480 To being in tatters. How did it go so wrong 0:07:26.760 --> 0:07:27.239 so quickly? 0:07:27.320 --> 0:07:29.120 You know, they talk so much in the election campaign 0:07:29.120 --> 0:07:31.560 about stability, fixing the foundation of the economy. 0:07:32.000 --> 0:07:33.720 Is it external shocks here? 0:07:33.840 --> 0:07:36.320 Is it what's going on globally or is the blame 0:07:36.400 --> 0:07:38.840 really to be do we need to point the thing 0:07:38.880 --> 0:07:40.200 of really at her and her policies. 0:07:40.400 --> 0:07:42.120 I mean, there's a bit of both. But the I mean, 0:07:42.240 --> 0:07:44.920 the reason why that the project is, you know, in 0:07:45.000 --> 0:07:49.640 deep trouble is because the entire project is based on growth, 0:07:50.160 --> 0:07:54.440 generating the returns that will deliver the public finance, the 0:07:54.480 --> 0:07:56.680 improvement in public finances so that you know, you know, 0:07:56.880 --> 0:07:59.280 basically the debt coming under control. Also all of the 0:07:59.280 --> 0:08:01.840 money for public services. I mean, she did forty billion 0:08:01.840 --> 0:08:04.160 of tax rises, which was you know, the fundamental way 0:08:04.160 --> 0:08:08.520 in which we fixed the public services, and that's the goal. 0:08:08.800 --> 0:08:09.400 But then. 0:08:10.720 --> 0:08:13.160 Because of the Manifesto pledges that you couldn't just do 0:08:13.240 --> 0:08:16.400 broad based tax rises, she's had to effectively put it 0:08:16.480 --> 0:08:19.480 all on business employer, you know, through the payroll tax, 0:08:19.520 --> 0:08:23.400 which is then causing uncertainty and problems for business about 0:08:23.440 --> 0:08:25.760 how that then comes through the pipe. Will it come 0:08:25.800 --> 0:08:28.800 through in higher prices so consumers a lot to pay 0:08:28.840 --> 0:08:32.400 more and that's inflationary. Will it come through in squeezing wages? 0:08:32.600 --> 0:08:36.200 I mean, there was these there's been a combination of 0:08:36.240 --> 0:08:41.520 sort of missteps because it's not clear exactly why, but 0:08:41.520 --> 0:08:43.760 obviously they were traps set by the Tory Party during 0:08:43.800 --> 0:08:48.319 the election and then and then subsequent decisions that were made. 0:08:48.960 --> 0:08:53.199 But you know, ultimately, if she doesn't get the growth, 0:08:53.960 --> 0:08:55.760 it's going to be very difficult to fix the public 0:08:55.800 --> 0:08:58.200 services and all the pledges she's made on not putting 0:08:58.280 --> 0:09:01.480 taxes on working people, you know, that may have to 0:09:01.480 --> 0:09:04.319 be broken in the worst case scenario. And so the 0:09:05.160 --> 0:09:07.520 project does begin to look like it's can. 0:09:07.320 --> 0:09:10.280 Unravel, and I think it's it's a good reminder that 0:09:10.679 --> 0:09:13.000 the UK is a small, open economy and I think 0:09:13.000 --> 0:09:15.160 Mark Carney had said, you know, realies on the kindness 0:09:15.160 --> 0:09:19.560 of strangers. This is an economy that's extremely dependent because 0:09:19.600 --> 0:09:23.920 of the amount of debt on foreign buyers of guilt. 0:09:24.600 --> 0:09:27.280 Which it's not just the debt actually, it's also that 0:09:27.320 --> 0:09:29.599 we have a we have a current account deficit to 0:09:29.679 --> 0:09:32.760 our trade position, so just paying to pay our way 0:09:32.800 --> 0:09:35.080 in the world, we require, you know, a lot of 0:09:35.120 --> 0:09:37.880 money from foreign for foreign investors into the UK. 0:09:37.960 --> 0:09:38.520 So we've got this. 0:09:38.760 --> 0:09:40.960 I mean in economics they call it, they talk about 0:09:41.000 --> 0:09:43.400 the twin deficit of the budget deficit and the current 0:09:43.400 --> 0:09:46.199 account deficits. So the government cannot find it itself without 0:09:46.480 --> 0:09:49.640 the kind of strange kindness of strangers that those overseas investors, 0:09:49.920 --> 0:09:52.160 and you know, just in general, like business and the 0:09:52.200 --> 0:09:55.320 way that the economy operates, it also needs that money 0:09:55.400 --> 0:09:59.080 from foreign investment as well. So if we if we 0:09:59.160 --> 0:10:02.400 spook those foreign investors, they either will take their money 0:10:02.400 --> 0:10:03.880 away or they'll say we want to beat which we 0:10:03.920 --> 0:10:05.400 want to charge us a bit of a premium. And 0:10:05.840 --> 0:10:08.240 that's what's happening now because that's why we're seeing those 0:10:08.280 --> 0:10:09.240 borrowing costs going up. 0:10:09.640 --> 0:10:11.840 What's also struck me this week, phil is is kind 0:10:11.840 --> 0:10:14.040 of what's going on in the real economy. We've had 0:10:14.080 --> 0:10:17.080 trading updates from some of the big bell Weather retailers 0:10:17.400 --> 0:10:20.200 talking about Christmas, you know, and it's this contrast because 0:10:20.200 --> 0:10:21.880 a lot of them have said, haven't they looked, so 0:10:22.000 --> 0:10:25.800 we had not a bad performance, next Mark Suspenser's sales up, 0:10:26.120 --> 0:10:28.559 But then they've thought they've had these very gloomy outlooks 0:10:28.559 --> 0:10:30.800 and said, look, we're being piled on with extra costs 0:10:30.840 --> 0:10:37.319 from wages from the National insurance hike, uncertainty in the future, 0:10:38.200 --> 0:10:40.600 and that has caused the share prices to take to 0:10:40.640 --> 0:10:43.600 take fright a bit. So it is underneath the hood 0:10:43.600 --> 0:10:46.800 of the economy. There's a lot of trepidation from business 0:10:47.240 --> 0:10:49.559 and is that feeding through to people thinking, well, growth 0:10:49.640 --> 0:10:52.520 is going to be really challenging, and that makes Rachel 0:10:52.559 --> 0:10:54.600 Reeves's whole project much harder to achieve. 0:10:54.720 --> 0:10:58.120 Yeah, there's there's definitely a sentiment issue going on in 0:10:58.160 --> 0:10:59.960 the business world. I mean, in a way, I do 0:11:00.080 --> 0:11:03.800 look back to the post Brexit where there was absolutely 0:11:03.840 --> 0:11:08.160 ridiculous level of uncertainty, and you know, we've got a 0:11:08.280 --> 0:11:10.880 very small fraction of that level of uncertainty coursed by 0:11:10.880 --> 0:11:14.079 all these Knix rises in the national living wage going up, 0:11:14.800 --> 0:11:17.400 and obviously what happened is that business learned to live 0:11:17.440 --> 0:11:19.760 with that uncertainty, and this will be much easier to 0:11:19.800 --> 0:11:21.880 learn to live with than Brexit. So I'm a bit 0:11:21.960 --> 0:11:26.760 cautious about the amount of damage that all this will 0:11:26.840 --> 0:11:31.559 ultimately do to the growth potential. But certainly businesses are 0:11:32.120 --> 0:11:34.280 saying that they're worried and that's it's and it's not 0:11:34.440 --> 0:11:37.520 helping sentiment. So Labor does have a growth strategy, which 0:11:37.559 --> 0:11:40.199 is this big investment plan and basically the reform agenda 0:11:40.240 --> 0:11:43.880 to get planning obstacles removed. Probably with that it's a 0:11:43.920 --> 0:11:46.680 sort of temporal issue. You've got in the short term, 0:11:46.720 --> 0:11:48.800 you've got all these tax rises coming through, which will 0:11:49.120 --> 0:11:52.720 inevitably have some kind of dampening effect on growth, but 0:11:52.760 --> 0:11:55.160 then the investment comes through later, so you can then 0:11:55.240 --> 0:11:57.840 get the growth later on. And so the Office Budget 0:11:57.880 --> 0:12:02.120 Responsibility is forecasting more to mystic growth trajectory in the 0:12:02.200 --> 0:12:04.760 back towards the back end of the forecast. But in 0:12:04.800 --> 0:12:08.760 the short term we're obviously facing this particular conundrum. And 0:12:08.840 --> 0:12:12.200 so people, I mean markets are looking at the immediate 0:12:12.440 --> 0:12:16.560 what's happening immediately, and you know, the budget forecasters are 0:12:16.600 --> 0:12:20.040 looking what's happening what's longer term, And obviously the government 0:12:20.080 --> 0:12:22.559 is trying to think has always been trying to think 0:12:22.600 --> 0:12:24.320 longer term. It's a question of whether they can get 0:12:24.360 --> 0:12:27.160 to that longer term thing without being completely disrupted by 0:12:27.160 --> 0:12:27.880 the market moves. 0:12:28.000 --> 0:12:29.840 It, Phil is as soon as you have, you know, 0:12:30.040 --> 0:12:33.360 big market moves and the market it's also almost a 0:12:33.440 --> 0:12:36.480 self fulfilling prophecy, right, And I know you wrote about 0:12:36.480 --> 0:12:39.240 the fact that you have these big move in borrowing 0:12:39.280 --> 0:12:43.320 costs in guilds but also pound and so you just 0:12:43.360 --> 0:12:45.880 have to make sure that investors don't completely lose faith. 0:12:46.240 --> 0:12:48.680 There's been a lot written about the speed of the 0:12:48.720 --> 0:12:51.360 moves and the fact that it was a little bit 0:12:51.520 --> 0:12:54.080 like the Lost Trust mini budget that was like a 0:12:54.080 --> 0:12:58.520 horror show. Is the market much better placed now in 0:12:58.600 --> 0:13:01.360 terms of being strengthened since that budget or is it 0:13:01.360 --> 0:13:03.280 more like the nineteen seventies deck crisis. 0:13:03.720 --> 0:13:06.880 Well, Martin Will's the former Bank of England rate setter 0:13:06.920 --> 0:13:10.040 who's drawn this nineteen seventy six analogy when the UK 0:13:10.120 --> 0:13:12.440 went to the IMF for a three point nine billion 0:13:12.480 --> 0:13:18.040 dollar loan. Obviously, the the issue here is whether you 0:13:18.080 --> 0:13:21.160 know markets aren't going to basically just turn against the 0:13:21.280 --> 0:13:26.000 UK entirely. I mean, I I'd be cautious to say 0:13:26.040 --> 0:13:30.680 I either scenario is the outlook at the moment, because 0:13:30.720 --> 0:13:34.240 we had huge short term movements and they and they 0:13:34.360 --> 0:13:38.680 kind of catalyzed into massive catastrophes through the through the 0:13:38.800 --> 0:13:40.440 LDI crisis that we had. 0:13:40.559 --> 0:13:43.000 We're having smaller moves now. It's kind of aworderly. 0:13:43.160 --> 0:13:44.679 I mean, as what I think a Deutsche Bank ever 0:13:44.840 --> 0:13:49.120 noted the foreign exchange desks suggested or they were saying 0:13:49.120 --> 0:13:51.320 that in a way, the fact that this is not 0:13:51.360 --> 0:13:54.360 an acute crisis, like Liz trust is kind of worse 0:13:54.360 --> 0:13:57.160 because it's actually saying people are genuinely worried about some 0:13:57.200 --> 0:14:00.280 of the underlying underlying dynamics in the UK. It of me, 0:14:00.600 --> 0:14:03.240 but it does mean, It does mean that you can 0:14:03.360 --> 0:14:06.280 get this kind of chronic picture for you know, the 0:14:06.400 --> 0:14:09.240 UK trajectory, which can which which can then become a 0:14:09.280 --> 0:14:12.480 dominant narrative. But that's not as dangerous in terms of 0:14:12.520 --> 0:14:17.240 immediate risks as a kind of complete acute catastrophe overnight, 0:14:17.280 --> 0:14:20.320 which can absolutely as we saw in twenty twenty two, 0:14:20.600 --> 0:14:22.320 you know, destroy a premiership. 0:14:22.920 --> 0:14:24.880 Yeah, in some ways, are we still kind of living 0:14:24.920 --> 0:14:27.080 I mean, you know, after Richison I took over and 0:14:27.160 --> 0:14:29.920 Jeremy Hunt, they talked a lot about repairing the damage 0:14:29.920 --> 0:14:34.120 to Britain's reputation internationally from the trust to backle and 0:14:34.240 --> 0:14:36.600 you know what was it called the Moron premium on 0:14:36.680 --> 0:14:38.360 not on UK bonds and all that, and that seems 0:14:38.360 --> 0:14:41.480 to have worked. But is the revival of these questions. 0:14:41.480 --> 0:14:44.000 Are we still kind of seeing the legacy of that 0:14:44.240 --> 0:14:46.400 shaking of the foundational belief that Britain is a good 0:14:46.400 --> 0:14:47.160 place to invest. 0:14:47.600 --> 0:14:50.200 At the moment, you can't help but think that, right, 0:14:50.280 --> 0:14:53.640 I mean, the UK has historically been a safe haven, 0:14:53.840 --> 0:14:58.800 and suddenly you have that trust situation where you know, 0:14:59.000 --> 0:15:01.760 we can mess things up so badly that it causes 0:15:01.960 --> 0:15:04.880 a massive market panic, and you know, for a brief period, 0:15:05.040 --> 0:15:07.360 you know, George Osborne in twenty ten used to say, 0:15:07.400 --> 0:15:09.720 We've got to worry about our you know, our sovereign 0:15:09.720 --> 0:15:12.560 position because we you know, there's a Greek debt crisis, 0:15:12.600 --> 0:15:14.520 and we could be like Greece. And it always seemed 0:15:14.560 --> 0:15:16.320 like a lot of nonsense and a lot of politics, 0:15:16.320 --> 0:15:18.800 and suddenly, you know, for a brief two week period, 0:15:18.880 --> 0:15:20.560 we kind of did look a little bit like Greece, 0:15:20.560 --> 0:15:23.760 and so that might have changed people's the way people 0:15:23.840 --> 0:15:25.880 view the UK. So I don't think it definitely don't 0:15:25.880 --> 0:15:27.720 think it has helped. The problem with labor is that 0:15:27.800 --> 0:15:30.080 labor is always you know, starting off on the back 0:15:30.080 --> 0:15:33.040 foot with markets, and financial markets will be less sympathetic 0:15:33.040 --> 0:15:35.840 to policies that they undertake. So should the Tories have 0:15:35.840 --> 0:15:38.240 done exactly the same thing, you could be pretty sure 0:15:38.280 --> 0:15:42.040 that they would not be getting as sharp a backlashes 0:15:42.480 --> 0:15:47.080 as labor are, just because of the history. Really, so 0:15:47.240 --> 0:15:49.200 it does make it just does make life a little 0:15:49.200 --> 0:15:50.320 bit more difficult for Reeves and co. 0:15:51.120 --> 0:15:54.160 So feel going forward because of the market moves. Basically 0:15:54.200 --> 0:15:57.680 this week it basically wiped out the spending buffer of 0:15:57.760 --> 0:16:01.120 around nine point nine billion pounds that Rachel does it, 0:16:01.120 --> 0:16:04.360 I mean, if it continues, you she'll have to find 0:16:04.360 --> 0:16:07.160 extra money. Do we have an emergency budget budget? Is 0:16:07.200 --> 0:16:09.160 it too soon to say? And if we do have 0:16:09.360 --> 0:16:12.360 something that she needs to do quickly, She's ruled out 0:16:12.440 --> 0:16:15.080 tax hikes, so does she just have to cut spending? 0:16:16.000 --> 0:16:18.360 Yeah, So that in the moment they're doing the spending 0:16:18.360 --> 0:16:22.400 review conversation, So the departments are seeing Darren Jones at 0:16:22.400 --> 0:16:26.040 the Treasury. He's the chief secretary who helps set their budgets, 0:16:27.320 --> 0:16:30.720 and the message effectively is that the spending envelope, which 0:16:30.760 --> 0:16:33.680 was set in the October budget cannot go higher, but 0:16:33.760 --> 0:16:36.200 it certainly can be smaller, and if they need to 0:16:36.240 --> 0:16:39.160 find a few billion quit they can just basically trim 0:16:39.200 --> 0:16:41.160 it from the sort of you know, I think it's 0:16:41.360 --> 0:16:44.240 about seven hundred billion pounds of departmental spending and your 0:16:44.280 --> 0:16:47.160 departmental spending, so you know, in that scheme of things, 0:16:47.200 --> 0:16:52.440 it's not an awful lot of money. Personally, I would 0:16:52.560 --> 0:16:55.360 I would not be surprised if we see some fiddling 0:16:55.400 --> 0:16:57.680 of the aid budget, which has already been dropped from 0:16:57.680 --> 0:16:59.720 two point seven to zero point five, and they obviously 0:16:59.720 --> 0:17:02.280 need to increased defense spending. So you know, they can 0:17:02.400 --> 0:17:04.720 some I don't know if they can change the accounting 0:17:04.760 --> 0:17:07.040 treatments and move more of it, you know, just move 0:17:07.119 --> 0:17:09.600 money out of out of aid into defense. But they'll 0:17:09.640 --> 0:17:12.239 be looking for painless ways of doing this because one 0:17:12.240 --> 0:17:14.760 of the problems that you hear from you know, investors 0:17:14.960 --> 0:17:18.359 is that in a market and financial market investors, is 0:17:18.720 --> 0:17:22.200 that there is a there was potentially a credibility problem 0:17:22.280 --> 0:17:25.280 if they just try and cut departmental spending, because that 0:17:25.400 --> 0:17:30.520 was exactly the fiscal fiction that nobody nobody believed that 0:17:30.600 --> 0:17:34.520 the spending trajectories from the March budget. When Hunt did 0:17:34.520 --> 0:17:37.280 his final budget for the Tories, no one believed those 0:17:37.280 --> 0:17:40.879 spending trajectories. And that's what Labor had to fix, and 0:17:40.960 --> 0:17:43.200 that's what the forty billion pounds of tax risers was for. 0:17:43.359 --> 0:17:45.800 If you go back, if she pushes back and says, actually, 0:17:45.800 --> 0:17:48.320 now we're going to do We're going to cut those 0:17:48.600 --> 0:17:52.320 budgets from where we've put them in October, the markets 0:17:52.359 --> 0:17:54.560 may just think this is nonsense. You know, it's another 0:17:54.600 --> 0:17:59.280 physical fiction your credibility. We're not gonna that's not gonna wash. 0:17:59.359 --> 0:18:01.960 And we're going to still turn against you because what 0:18:01.960 --> 0:18:05.119 you're doing is trying to trick us. And I think, 0:18:05.280 --> 0:18:06.840 you know, we've got to this point where you just 0:18:06.880 --> 0:18:10.520 can't trick the markets any any longer. They're kind of 0:18:11.080 --> 0:18:12.280 they've reached the end of the tether. 0:18:12.440 --> 0:18:16.160 Yeah, we've so obviously we've heard some you know, attempts 0:18:16.200 --> 0:18:18.719 to calm the markets, and you know, the Chief Treasury 0:18:18.760 --> 0:18:20.399 is saying that, you know, the market moves are all 0:18:20.440 --> 0:18:22.840 in all this stuff. But on the politics of this 0:18:22.920 --> 0:18:25.560 as well. The chance has gone off to China, hasn't 0:18:25.600 --> 0:18:28.320 she on on a trip, and some discussion about. 0:18:28.080 --> 0:18:29.119 Whether that was the right thing to do. 0:18:29.240 --> 0:18:31.760 I hesitate a little bit of what I'm going to 0:18:31.760 --> 0:18:34.280 say anyway, about remembering quasi quat and going off to 0:18:34.359 --> 0:18:36.520 Washington at the height of the trust to back and 0:18:36.600 --> 0:18:38.680 of course on his way back he didn't have a job. 0:18:38.720 --> 0:18:41.160 I don't think I'm assuming you don't think we're quite 0:18:41.160 --> 0:18:43.720 there yet, but they you know, is it wise the 0:18:43.800 --> 0:18:45.400 chance to fly to the other side of the world 0:18:45.400 --> 0:18:46.840 when the markets are convulsing like this? 0:18:48.040 --> 0:18:51.680 I mean I don't think it's I don't think I 0:18:51.680 --> 0:18:53.760 don't think it's a problem. It's because it's not acute. 0:18:53.760 --> 0:18:57.080 It's because it's not like trusts. I don't think it's comparable. 0:18:57.080 --> 0:19:01.520 I mean, actually that nineteen seventy six analogy is it's 0:19:01.560 --> 0:19:03.800 similar because Dennis Healy was on his way to Washington, 0:19:03.840 --> 0:19:06.520 he was the chancellor in nineteen seventy six, and he 0:19:06.560 --> 0:19:08.520 had to turn around at the airport and head back 0:19:09.000 --> 0:19:11.040 to the Labor Party conference at the time and tell 0:19:11.080 --> 0:19:12.720 them that they're going to have to tighten their belts. 0:19:12.720 --> 0:19:17.440 But the Yeah, I think she should go to China 0:19:17.520 --> 0:19:19.280 and she should be looking, you know, they should be 0:19:19.320 --> 0:19:22.160 looking beyond this because this is this is something which 0:19:22.520 --> 0:19:26.760 can be addressed in coming days. Obviously, you know, on Monday, 0:19:26.920 --> 0:19:31.320 if the market's convulsed massively, she should be back in 0:19:31.400 --> 0:19:32.320