WEBVTT - Which Way Will the UK Go on Rate Cuts? 0:00:00.320 --> 0:00:03.280 Hello, in the City listeners. We're dropping this episode and 0:00:03.400 --> 0:00:06.200 future episodes of In the City earlier in the week. 0:00:06.640 --> 0:00:09.520 That's because we have a special treat for you, releasing 0:00:09.560 --> 0:00:12.159 this Friday. As many of you know, this famously is 0:00:12.200 --> 0:00:15.080 a year of elections. Around forty percent of the world's 0:00:15.120 --> 0:00:17.759 population have voted or will have the chance to vote 0:00:17.800 --> 0:00:20.840 in twenty twenty four, and those votes will shape the 0:00:20.920 --> 0:00:25.080 geoeconomic landscape for years to come. The implications are huge 0:00:25.200 --> 0:00:28.680 and worth exploring, which is why we're launching a bonus 0:00:28.680 --> 0:00:33.519 series called Voternomics. Bloomberg's head of Government and Economics, Stephanie Flanders, 0:00:33.880 --> 0:00:37.360 opinion columnist Adrian Woolridge, and in the city's very own 0:00:37.400 --> 0:00:41.040 Allegra Straton will lead the charge. Every Friday, they'll take 0:00:41.080 --> 0:00:43.720 a few steps back from the weekly news agenda and 0:00:43.800 --> 0:00:47.919 help you understand how the latest political movements are influencing markets, 0:00:47.960 --> 0:00:51.280 business and policy. This year, voters around the world have 0:00:51.320 --> 0:00:55.600 the ability to affect markets, countries, and economics like never before. 0:00:56.040 --> 0:00:58.560 Let voter Nomics help you make sense of it all. 0:00:58.960 --> 0:01:01.680 So on Tuesdays, you'll still get a weekly taste of 0:01:01.720 --> 0:01:04.400 what's driving the conversations happening in the City and on 0:01:04.440 --> 0:01:08.240 Wall Street and now on Fridays, a more focused look 0:01:08.360 --> 0:01:12.080 and where politics and markets collide. Stay tuned, and we 0:01:12.120 --> 0:01:12.479 hope we. 0:01:12.520 --> 0:01:20.840 Enjoy Bloomberg Audio Studios, podcasts, radio news. 0:01:24.160 --> 0:01:25.480 Are we excited? 0:01:25.640 --> 0:01:26.640 We're so excited? 0:01:26.880 --> 0:01:27.039 Is he? 0:01:27.959 --> 0:01:28.160 Yeah? 0:01:28.240 --> 0:01:28.920 We have a lot of time. 0:01:29.120 --> 0:01:32.080 Lass Sugar'll be a low at some point as well. 0:01:36.720 --> 0:01:37.640 I forgot my question. 0:01:43.840 --> 0:01:45.959 Welcome to the City of London, the. 0:01:45.920 --> 0:01:51.360 City of the City, the City of London. Please mind 0:01:51.440 --> 0:02:04.400 the gap between the and the financial hearts of the country. 0:02:01.000 --> 0:02:02.280 The city, the city. 0:02:02.680 --> 0:02:04.040 Welcome to in the city. 0:02:06.160 --> 0:02:11.440 Then clear of the doors. Time for a weekly look 0:02:11.480 --> 0:02:16.400 at the conversations motivating power brokers, policymakers and financiers the 0:02:16.440 --> 0:02:18.920 world over. This week all lies on the US and 0:02:19.000 --> 0:02:21.919 UK economies and the race to cut interest rates. First, 0:02:22.200 --> 0:02:23.080 I'm Francis. 0:02:22.760 --> 0:02:28.160 Laqua, I'm David Merritt, and I'm alegra Stratton. Hi everyone, I'm. 0:02:30.280 --> 0:02:30.760 So sorry. 0:02:30.800 --> 0:02:33.919 That's where I was like, oh my god, wait wait 0:02:33.919 --> 0:02:35.240 wait wait wait, that was. 0:02:35.200 --> 0:02:38.720 Perfect I supposed to say hell no. 0:02:38.840 --> 0:02:41.800 So this week, this week, we're lucky enough to have 0:02:41.840 --> 0:02:44.440 Phil Aldrake, who's just come back from the IMF World 0:02:44.440 --> 0:02:47.040 Bank meetings to give us a glimpse of the conversations 0:02:47.040 --> 0:02:49.520 and the corridors of power and actually what central banks 0:02:49.520 --> 0:02:50.080 will do next. 0:02:51.560 --> 0:02:55.600 Welcome back to in the city, Phil Hi. Hi, tell 0:02:55.639 --> 0:02:57.440 us about your trip. What was it? What was the 0:02:57.440 --> 0:03:01.320 word on the ground in DC as have one debated 0:03:01.320 --> 0:03:02.400 the state of the world economy. 0:03:02.760 --> 0:03:06.480 It was slightly because obviously, whilst the meetings were happening, 0:03:06.480 --> 0:03:10.280 we're having the Israeli Evran strikes and obviously Ukraine and 0:03:10.360 --> 0:03:12.720 Russia still going on, So there was these two The 0:03:12.760 --> 0:03:17.520 backdrop was these two wars and political uncertainty that is 0:03:17.560 --> 0:03:19.920 becoming just the norm at the moment. Then it was 0:03:20.000 --> 0:03:23.120 kind of all seen through the very imf prism of 0:03:23.160 --> 0:03:24.800 what it means for the global economy and what it 0:03:24.800 --> 0:03:27.920 means for interest rates, and and you know, you have 0:03:28.120 --> 0:03:32.200 at the moment this prospect of the Federal Reserve in 0:03:32.240 --> 0:03:35.560 the US possibly even pushing interest rates higher because inflation 0:03:35.640 --> 0:03:38.240 is proving quite sticky, and the MS was saying that 0:03:38.280 --> 0:03:42.840 the US economy is overheating effectively, and that has repercussions 0:03:42.840 --> 0:03:45.360 for the developing world, where you know, they have a 0:03:45.360 --> 0:03:47.200 lot of debt priced in dollars and it becomes more 0:03:47.200 --> 0:03:50.200 and more unaffordable as the as the dollar increases, and 0:03:50.240 --> 0:03:53.160 then back here in the UK and in Europe we're 0:03:53.160 --> 0:03:57.800 seeing a sort of central bank divergences as the Eurozone 0:03:58.440 --> 0:04:01.480 Central European Central Bank and Bank of England look like 0:04:01.520 --> 0:04:04.920 they may be going in opposite direction or moving significantly 0:04:04.960 --> 0:04:06.240 earlier than the FED. 0:04:06.920 --> 0:04:09.080 Just to back up a little bit on the US economy, 0:04:09.120 --> 0:04:11.720 the people haven't been tracking it that closely. How do 0:04:11.840 --> 0:04:14.480 we get it all so wrong? I mean, there are 0:04:14.520 --> 0:04:18.039 predictions for a recession in the US. This year, we 0:04:18.120 --> 0:04:24.039 had the fastest hiking cycle in recent memory, and yet 0:04:24.120 --> 0:04:26.400 the IMF. What you're just saying now is the IMF 0:04:26.480 --> 0:04:29.120 saying the US economy is overheating. How is that possible 0:04:29.120 --> 0:04:31.600 with interest rates where they are? And how did the 0:04:31.640 --> 0:04:33.719 whole world and all the economists and all the market 0:04:33.760 --> 0:04:35.240 traders that everyone get it all so wrong. 0:04:35.440 --> 0:04:38.479 Well, as someone said that the Inflation Reduction Act is 0:04:38.520 --> 0:04:40.400 one of the what they think is one of the 0:04:40.440 --> 0:04:44.839 cathalytic factors here, and as they said, it doesn't increasing, 0:04:45.120 --> 0:04:46.680 it doesn't do what it says on the tin, it's 0:04:46.720 --> 0:04:49.680 doing the opposite. So there's a hell of a fiscal. 0:04:49.400 --> 0:04:51.960 Stick because it's stimulating manufacturer. 0:04:52.080 --> 0:04:52.760 Yeah, there's. 0:04:54.600 --> 0:04:55.400 Huge hor money. 0:04:55.440 --> 0:04:58.040 There's a huge amount of money going into the US economy, 0:04:58.440 --> 0:05:01.200 and there's all these concerns about debts spiking up to 0:05:01.240 --> 0:05:05.560 unsustainable levels there, et cetera. And that is what is 0:05:05.680 --> 0:05:09.359 driving the economic growth in the US. And it is remarkable. 0:05:09.400 --> 0:05:12.560 I mean, across the world there hasn't been this recession 0:05:12.600 --> 0:05:15.320 that was anticipated by as a result of much higher 0:05:15.320 --> 0:05:16.919 interest rates. I mean the UK had that, you know, 0:05:16.920 --> 0:05:19.440 it's had that tiny little technical recession, but we're already 0:05:19.440 --> 0:05:20.119 out of it, it seems. 0:05:20.160 --> 0:05:21.800 I mean, what I loved was twenty twenty three because 0:05:21.800 --> 0:05:24.800 we were expecting a flat lining economy. Then it was 0:05:24.920 --> 0:05:27.120 in a recession, then it was growing. I mean, it's 0:05:27.120 --> 0:05:29.120 true that everything was all over the place, but part 0:05:29.160 --> 0:05:32.200 of it is also reshoring, right, So the US economy 0:05:32.240 --> 0:05:35.800 is bringing back so much of their manufacturing that that 0:05:35.920 --> 0:05:38.000 kind of boosted everything seems to have them happening at 0:05:38.000 --> 0:05:40.800 the same time. So after COVID people are spending, there's 0:05:41.160 --> 0:05:44.080 a lot of immigration that's helping with productivity. So it's 0:05:44.120 --> 0:05:46.719 almost like the perfect storm to the upside for the 0:05:46.800 --> 0:05:47.520 US economy. 0:05:47.720 --> 0:05:53.560 Yeah. Yeah, So the Made in America policies of Biden, massive, massive, 0:05:53.600 --> 0:05:57.240 fiscal spending those two things, and have seen that there 0:05:57.240 --> 0:06:01.000 has definitely been a massive increase in space power, living 0:06:01.040 --> 0:06:04.080 standards are improving, GDP is growing really fast, and the 0:06:04.120 --> 0:06:08.120 IMF estimates that the US economy is now zero point 0:06:08.240 --> 0:06:10.720 seven percentage points above what is sort of it's it's 0:06:11.080 --> 0:06:15.159 actual speed limit, which effectively they'll be saying, you know, 0:06:15.240 --> 0:06:19.360 all else equal, there should be rate rises, and obviously 0:06:19.440 --> 0:06:22.080 they've just they've just started, they've just started to hold 0:06:22.160 --> 0:06:24.080 rates after a massive increase in rates. Two. 0:06:24.520 --> 0:06:26.799 So, a few weeks back, I saw commentary that maybe 0:06:26.800 --> 0:06:29.080 in the States the FED would be inclined to do 0:06:29.240 --> 0:06:32.320 a cut as a as a helping hand to Biden. 0:06:32.520 --> 0:06:35.800 That now sounds like that might be for the birds the. 0:06:35.839 --> 0:06:40.400 Current juncture, that definitely looks extraordinarily unlikely. And obviously J Powell, 0:06:40.440 --> 0:06:42.720 the head of the FED, has has pulled back and 0:06:42.880 --> 0:06:45.640 he's he's he's definitely signaling that they're not going to 0:06:45.640 --> 0:06:49.160 be cutting anytime soon. Seems extraordinarily unlikely that they are 0:06:49.200 --> 0:06:52.320 actually going to raise rates as the IMF forecast would suggest. 0:06:52.360 --> 0:06:54.680 But they but they don't look like they're going to 0:06:54.760 --> 0:06:56.000 do any interest rate cuts. 0:06:56.040 --> 0:06:57.839 I mean, obviously it's also important, isn't it what the 0:06:57.880 --> 0:07:00.360 central bankers say and everyone poor particular cleap of the 0:07:00.400 --> 0:07:04.239 fair everyone pause over the exact phrasing the sentences. Every 0:07:04.640 --> 0:07:08.279 comma or full stop means something. But there is a 0:07:08.320 --> 0:07:11.200 theory is they're not that by him saying that they 0:07:11.200 --> 0:07:14.600 were going to be or signaling rate carts earlier this 0:07:14.720 --> 0:07:18.800 year has actually added to inflation because people have baked 0:07:18.800 --> 0:07:21.440 in already that that was coming. So is it? Is it? 0:07:21.880 --> 0:07:25.120 Pal's full? There's the messaging. I mean, I know it's 0:07:25.320 --> 0:07:27.280 you know, it's an impossible art, isn't it being a 0:07:27.280 --> 0:07:29.560 central banker? But did they get the messaging wrong? Is 0:07:29.600 --> 0:07:33.240 that why everyone mispriced where inflation was headed? Well? 0:07:33.320 --> 0:07:36.880 Inflation was falling quite quickly last week. Actually, Jeremy hunt 0:07:36.920 --> 0:07:39.040 in the out in the US. When he was out 0:07:39.040 --> 0:07:43.000 in the US, he actually suggested that you can declare victory, 0:07:43.080 --> 0:07:46.800 UK can declare victory over inflation. And that's effectively what 0:07:46.800 --> 0:07:49.960 what had happened in America. They effectively declared victory over 0:07:50.000 --> 0:07:51.560 inflation and then inflation. 0:07:53.000 --> 0:07:55.560 But then the very next day, right the very next day, 0:07:55.680 --> 0:07:57.040 the drop wasn't as much as was. 0:07:57.040 --> 0:08:00.880 Effected exactly, and then and so what you're seeing is 0:08:01.040 --> 0:08:04.280 the inflation persistence that really that underlying you know, the 0:08:04.320 --> 0:08:11.440 way wages rising services which services, inflation is proving sticky 0:08:11.600 --> 0:08:14.680 and so they haven't been able to squeeze inflation out 0:08:14.720 --> 0:08:17.360 as easily as they thought in the US, and the 0:08:17.400 --> 0:08:19.360 fear would be for you know, the read across to 0:08:19.400 --> 0:08:21.640 the UK would be that maybe we still have very 0:08:21.720 --> 0:08:24.440 high underlying measures of inflation. And the fear is that 0:08:24.720 --> 0:08:27.400 is that, you know, we have also going to find 0:08:27.400 --> 0:08:29.360 that we are also going to find it more difficult 0:08:29.360 --> 0:08:33.240 to squeeze out these last vestiges of inflation. 0:08:33.320 --> 0:08:36.120 But the difference, I guess here rather depressing me is 0:08:36.160 --> 0:08:39.560 that we don't have going along with that inflation roaring 0:08:39.640 --> 0:08:45.040 GDP growth boosting, you know, large increases in domestic manufacturing. 0:08:45.080 --> 0:08:47.760 So the Britain finds itself, as you said earlier, it's 0:08:47.880 --> 0:08:50.640 just emerged from a very mild technical recession, but a 0:08:50.640 --> 0:08:53.080 recession less. So we're nowhere near where the US is 0:08:53.080 --> 0:08:53.920 in terms of great. 0:08:53.760 --> 0:08:55.760 Yeah, well exactly that was the That was the IMF 0:08:55.800 --> 0:08:59.400 analysis in their World Economic Outloo. Basically, both the Euros 0:08:59.640 --> 0:09:03.240 and UK are operating below what the capacity of the 0:09:03.280 --> 0:09:06.040 economy is, which means that we've you know, we in 0:09:06.160 --> 0:09:09.160 theory do need to cut rakes to just boost that 0:09:10.200 --> 0:09:13.080 sort of demand level to get to get the economy 0:09:13.440 --> 0:09:16.600 going at it, growing at its speed limit as economists 0:09:16.720 --> 0:09:20.400 like to term it. So we are in a very 0:09:20.440 --> 0:09:24.320 different place to the US. The economy it's looking like 0:09:24.400 --> 0:09:28.360 it is picking up at the moment, so that's definitely positive, 0:09:28.360 --> 0:09:30.920 but it's not going gangbusters at all. I mean, obviously 0:09:32.080 --> 0:09:34.840 we're growing at zero point five percent this year according 0:09:34.840 --> 0:09:37.520 to the IMF, which is pretty miserable. 0:09:37.559 --> 0:09:41.720 Really, just to sort of remove ourselves from America and 0:09:41.800 --> 0:09:43.360 step back to where we are right now, which is 0:09:43.400 --> 0:09:46.640 the UK. Tell us about Andrew Bailey, I'm kind of 0:09:46.640 --> 0:09:50.120 fascinated by him and by his Munch Policy Committee. Now, firstly, 0:09:50.200 --> 0:09:53.920 they is an institution, seemed kind of gloriously free wheeling 0:09:53.960 --> 0:09:56.880 and that they'd say very different things on very different days. 0:09:57.840 --> 0:10:00.800 Is that your impression is that to me it seems 0:10:00.880 --> 0:10:01.440 quite healthy. 0:10:01.679 --> 0:10:05.640 Yeah. I think this is part of the way that 0:10:05.679 --> 0:10:09.480 the bank operates, which is particularly they've got four external members, 0:10:09.480 --> 0:10:12.400 so they've got five on the Monetary Policy Company, five internals, 0:10:12.400 --> 0:10:14.719 so five will represent exactly what the Bank of England think. 0:10:14.800 --> 0:10:17.080 So they would you'd expect them to move more as 0:10:17.120 --> 0:10:20.360 a sort of homogeneous mass. And then the five externals 0:10:20.360 --> 0:10:23.920 are there effectively to challenge you know, consensus opinion, and 0:10:24.240 --> 0:10:25.960 you know, so that the idea is to is to 0:10:26.040 --> 0:10:28.960 break group think. And if you think back to the 0:10:29.040 --> 0:10:33.080 Carneie days where you know, group think was an issue 0:10:33.160 --> 0:10:35.160 became an issue in the political sphere for why why 0:10:35.559 --> 0:10:37.920 does the bank all seem all all of the members 0:10:37.960 --> 0:10:39.760 of the NPC all seem to vote the same way. 0:10:40.000 --> 0:10:43.280 We should be having checks and balances on monitary policy 0:10:43.320 --> 0:10:46.240 decision making. So the fact that Megan Green and Catherine 0:10:46.280 --> 0:10:51.120 Mann in particular have been you know, distinctly more hawkish 0:10:51.240 --> 0:10:54.560 than recent comments from the governor Andrew Bailey or his 0:10:54.640 --> 0:10:59.360 deputy Dave Ramsden, you know, just is does show that 0:10:59.320 --> 0:11:02.080 the committee is working as you say it is. It 0:11:02.160 --> 0:11:03.079 is healthy to have. 0:11:03.440 --> 0:11:04.679 So I wouldn't get that at the top of a 0:11:04.720 --> 0:11:08.160 political party, and maybe maybe you would. It's refreshing because 0:11:08.160 --> 0:11:10.760 it is a genuine dialogue and I think probably both 0:11:10.840 --> 0:11:12.640 views are valid, right, So it's not that one is 0:11:12.640 --> 0:11:14.760 more valid than the other, but it's just difficult to 0:11:14.880 --> 0:11:17.160 you know, one day we think, oh, right, Bailey's gearing 0:11:17.240 --> 0:11:19.480 up to cut quite soon, and obviously that has an 0:11:19.520 --> 0:11:21.560 effect on the markets, and then the sort of you know, 0:11:21.679 --> 0:11:24.040 a day and a half later you get somebody from 0:11:24.040 --> 0:11:25.320 his team saying something different. 0:11:25.679 --> 0:11:29.800 You'll have different governors depending on their characteristics, on their personalities. 0:11:29.840 --> 0:11:33.560 And Andrew Bailey is definitely the kind of person who 0:11:33.640 --> 0:11:36.640 is quite happy to tolerate dissent and does and doesn't 0:11:36.679 --> 0:11:39.600 see it as something that undermines him, although you know, 0:11:39.720 --> 0:11:42.200 externally it can look like he's undermined. You know that 0:11:42.320 --> 0:11:45.640 he may want to vote in one direction and others 0:11:45.640 --> 0:11:48.120 on the committee may vote against him, and he could 0:11:48.160 --> 0:11:50.120 We haven't seen it with Andrew Bailey, but he could 0:11:50.200 --> 0:11:53.320 potentially be outvoted and as the governor, that might look 0:11:53.679 --> 0:11:56.440 like he's a weak governor. Mervin King was outvoted a 0:11:56.440 --> 0:11:59.160 few times when he was governor, but that I don't 0:11:59.160 --> 0:12:02.000 think it doesn't act Actually it doesn't actually undermine the 0:12:02.480 --> 0:12:04.120 governor's authority or the institution. 0:12:04.360 --> 0:12:07.360 But you know, to Allgo's very good point. They did 0:12:07.480 --> 0:12:10.120 have to get Ben Bernanke to do a review on 0:12:10.160 --> 0:12:12.480 communications at the Bank of England. So you have people 0:12:12.520 --> 0:12:15.400 like Madam and Elieren saying actually it's refreshing and you know, 0:12:15.640 --> 0:12:17.920 you have all views and so you can assess. But 0:12:17.960 --> 0:12:21.360 then they had to get an external former Fed president 0:12:21.559 --> 0:12:23.480 to look at how it was working because markets were 0:12:23.520 --> 0:12:25.320 complaining that they weren't getting the right information. 0:12:25.600 --> 0:12:29.239 Yeah, that the market reaction to how the bank communicates 0:12:29.320 --> 0:12:32.120 is is a tricky one because because there isn't a 0:12:32.280 --> 0:12:34.800 as you say, because there isn't a single voice. Bankei's 0:12:34.800 --> 0:12:37.520 review doesn't resolve that because basically these people, these are 0:12:37.640 --> 0:12:40.319 supposed to be people with their own individual opinions on things. 0:12:41.240 --> 0:12:45.760 But it it is, it does help. What he's proposing 0:12:46.280 --> 0:12:50.320 does help communicate, you know what, what they see the 0:12:50.360 --> 0:12:52.959 economic outlook to be the he's he wants to improve 0:12:52.960 --> 0:12:56.400 the communication of their forecast, of their ability, you know, 0:12:56.440 --> 0:12:58.840 of of the way that they see policy will evolve 0:12:58.960 --> 0:13:01.319 as which is a bit more like the American system 0:13:01.320 --> 0:13:04.040 where there's the dot plot, so you can see see 0:13:04.360 --> 0:13:05.840 it's not going to be the dot plots, but you 0:13:05.840 --> 0:13:09.520 can see something which would indicate the way policy should move. 0:13:09.559 --> 0:13:12.160 And at the moment they don't really provide that. In fact, 0:13:12.200 --> 0:13:14.680 they don't provide that at all, which is a much 0:13:14.679 --> 0:13:16.800 more confusing way of communicating. 0:13:16.840 --> 0:13:19.480 So my favorite moment of the press conference is sometimes 0:13:19.480 --> 0:13:21.520 where someone says, but the market was expecting this, and 0:13:21.640 --> 0:13:24.280 usually I mean it's happened twice where Governor Bailey says, well, 0:13:24.280 --> 0:13:25.840 Bloomberg Economics got it right. 0:13:27.320 --> 0:13:30.120 Speaking of Bloomberg Economics is predicting that the bank starts 0:13:30.120 --> 0:13:33.040 to cut in the summer, and lots of other people 0:13:33.760 --> 0:13:37.240 banks are predicting that too, but traders are not so 0:13:37.520 --> 0:13:38.400 help us on pick that. 0:13:38.559 --> 0:13:40.880 This is another tricky one. And actually this has seemed 0:13:40.880 --> 0:13:43.360 to be one of the main issues that Andrew Bailey 0:13:43.400 --> 0:13:46.080 was trying to address out at Washington at the IMF. 0:13:46.120 --> 0:13:49.600 But so the market path in the UK for rate 0:13:49.640 --> 0:13:54.160 cuts has a first rate cut happening in I think 0:13:54.160 --> 0:13:57.640 it's even moving as we're speaking, but in around September, 0:13:58.840 --> 0:14:01.880 and it pushed the first rate cut out to the 0:14:01.920 --> 0:14:04.520 market had pushed the first rate cut out to November. 0:14:04.240 --> 0:14:04.840 At one point. 0:14:05.440 --> 0:14:08.280 Part of this is because our market path, our market 0:14:08.320 --> 0:14:10.520 is affected by what happens in the US, and because 0:14:10.880 --> 0:14:14.439 because the Federal Reserve is such a powerful global institution, 0:14:14.800 --> 0:14:19.360 it changes the outlook in the way the markets price everything, 0:14:19.400 --> 0:14:21.680 and so the outlook for the UK then looks different, 0:14:21.720 --> 0:14:27.200 and that effectively creates a communication problem for the Bank 0:14:27.240 --> 0:14:29.240 of England because they have their own vision of what 0:14:29.280 --> 0:14:31.600 the market pass should be and at one point this 0:14:31.800 --> 0:14:35.320 year they thought the indication seemed to be that first 0:14:35.400 --> 0:14:38.480 rate rice could be in June. If it's not going 0:14:38.520 --> 0:14:40.800 to happen until November according to market to the markets, 0:14:40.840 --> 0:14:45.560 that seems extraordinarily unlikely under current forecasts. So the Bank 0:14:45.600 --> 0:14:49.000 of England officials are trying to talk the market round 0:14:49.160 --> 0:14:52.480 into sort of stripping out this this sort of Fed 0:14:52.520 --> 0:14:55.560 premium that's sort of priced into the UK market to 0:14:55.560 --> 0:14:58.160 try and get it back on track. And this is. 0:15:00.200 --> 0:15:03.400 I mean, it's like the Fed's gravitational pull and what 0:15:03.440 --> 0:15:05.480 it does to dollar. It's I mean, every time essential 0:15:05.520 --> 0:15:08.960 banker says, well, we focus on our own economy, it's like, well, yeah, sure, buddy, 0:15:09.040 --> 0:15:10.440 but everything around you is changing. 0:15:10.520 --> 0:15:13.440 So if the FED doesn't cut interest rates until the 0:15:13.520 --> 0:15:15.640 end of the year or maybe next year, and we 0:15:15.800 --> 0:15:17.520 and we wait in the UK, we're just going to 0:15:17.520 --> 0:15:21.000 punish our economy. But the but the difficulty for the 0:15:21.040 --> 0:15:23.120 bank is that then we would have more inflation because 0:15:23.160 --> 0:15:25.960 twenty percent of the basket of currencies that were measured 0:15:25.960 --> 0:15:28.520 against is the dollar, and so you know, you they 0:15:28.560 --> 0:15:31.200 have to think about their second round effects. And this 0:15:31.480 --> 0:15:35.800 was the discussion in terms of BOE policy at the 0:15:35.840 --> 0:15:40.080 IMF was, you know, if the US isn't going to 0:15:40.120 --> 0:15:43.840 cut till much later and the UK will if there 0:15:43.920 --> 0:15:47.640 is a sterling reaction, you've got factor that into your 0:15:47.680 --> 0:15:50.840 thinking of how many cuts you're going to be doing, 0:15:51.320 --> 0:15:54.240 because you're going to get some inflation back into the 0:15:54.280 --> 0:15:57.520 system just by cutting interest rates. So it is, it 0:15:57.600 --> 0:16:00.560 is confusing, but it is and it reques wise clear 0:16:00.560 --> 0:16:05.560 communications which obviously you know haven't been perfect in the 0:16:05.600 --> 0:16:11.680 past and as the world, but they're definitely moving towards this. 0:16:11.680 --> 0:16:15.800 This the ability to move at different times, so the 0:16:15.880 --> 0:16:17.600 first cut can come in the UK and in the 0:16:17.640 --> 0:16:22.120 European at the European Central Bank before the FED without 0:16:22.400 --> 0:16:24.560 without these severe repercussions. 0:16:24.600 --> 0:16:27.000 That's do we really need to be I mean, it 0:16:27.040 --> 0:16:29.240 fills a little bit from everything you've been saying for that. 0:16:29.800 --> 0:16:32.240 You know, the market is a few steps behind here, 0:16:32.360 --> 0:16:35.120 and why do we need to cut rates in the UK. 0:16:35.320 --> 0:16:37.920 You know, we hit the footze hundred hit a record yesterday. 0:16:37.920 --> 0:16:39.840 We're taping this on Tuesday, right, we had a record 0:16:39.840 --> 0:16:42.600 in the UK stock market. We've seen reports that house 0:16:42.600 --> 0:16:44.760 prices of stabilizing, our asking prices are going up a 0:16:44.800 --> 0:16:48.840 little bit. We're out of that technical recession. That doesn't 0:16:48.840 --> 0:16:50.240 really add up to me as a moment when you 0:16:50.280 --> 0:16:53.280 start cutting interest rates, does it, And especially if inflation, 0:16:53.520 --> 0:16:58.520 as Allegra said, is proving stickier than it was supposed 0:16:58.560 --> 0:16:58.840 to take. 0:16:59.520 --> 0:17:02.040 You speak day like a man who's not thinking about 0:17:02.040 --> 0:17:05.840 politics shouldn't be either. 0:17:07.960 --> 0:17:08.400 Yeah. 0:17:08.480 --> 0:17:11.199 I actually obviously they're very if you ask them, they 0:17:11.200 --> 0:17:14.240 are absolutely adamant that politics doesn't come into their thinking 0:17:14.359 --> 0:17:14.960 at all. 0:17:15.000 --> 0:17:16.160 Of course, not part of. 0:17:16.119 --> 0:17:18.919 The reason that the economy is doing better, as you 0:17:18.920 --> 0:17:22.000 were saying earlier, Davis, because interest rates the market public 0:17:22.080 --> 0:17:24.760 interest rates had fallen quite sharply, so that effectively had 0:17:24.760 --> 0:17:29.879 brought in lower borrowing costs for mortgage for mortgages, and 0:17:29.680 --> 0:17:32.679 and and commercial and small businesses as well. You know 0:17:32.720 --> 0:17:36.639 they they would be facing lower lower borrowing costs. The 0:17:37.960 --> 0:17:39.879 reason why you have to I think rates have to 0:17:39.880 --> 0:17:44.440 be cut as well. The banks. The bank's own internal 0:17:44.440 --> 0:17:49.000 analysis is that you know, the stable rate, the interest 0:17:49.080 --> 0:17:51.440 rate that we need in the UK is significantly below 0:17:51.520 --> 0:17:54.399 five and a quarter percent, so you can cut to 0:17:54.480 --> 0:17:56.959 say four and a half or wherever it ends up 0:17:57.000 --> 0:18:00.920 being without Actually, you know, if you've got your foot 0:18:00.920 --> 0:18:02.480 on the break at the moment, you're just easing the 0:18:02.480 --> 0:18:04.760 foot off the break rather than putting it on the accelerator. 0:18:04.840 --> 0:18:08.639 So that's that just can help growth in general. But also, 0:18:08.880 --> 0:18:12.200 you know, small businesses are paying off debt rather than investing. 0:18:12.920 --> 0:18:17.280 You know, companies are worrying about future debt sustainability issues, 0:18:17.359 --> 0:18:23.119 Households are being are still having to reset onto higher rates, and. 0:18:22.640 --> 0:18:24.240 That's a really extended process and it's. 0:18:24.240 --> 0:18:28.399 Very because of the fixed rate phenomenon here. But so 0:18:28.800 --> 0:18:30.920 so you know, there is there is pain that is 0:18:31.000 --> 0:18:34.639 still coming through the economy. So it's it's and the idea, 0:18:34.760 --> 0:18:37.200 the dream, certainly from the political point of view, is 0:18:37.200 --> 0:18:39.520 that you get this soft landing where you know, inflation 0:18:39.680 --> 0:18:41.960 comes down to its two percent and you just and 0:18:42.040 --> 0:18:44.520 you just get the economy just going taking off at 0:18:44.520 --> 0:18:47.920 the same time corflation comes down, and yeah, and then exactly, 0:18:48.119 --> 0:18:50.520 and then the election is held in October or whenever 0:18:50.560 --> 0:18:50.800 it is. 0:18:51.160 --> 0:18:54.080 I read in maybe one of your brilliant pieces there 0:18:54.200 --> 0:18:58.280 was an analyst quoted as saying we shouldn't really have 0:18:58.359 --> 0:19:00.000 a rate cut this year, or maybe it would be 0:19:00.080 --> 0:19:03.040 November December, but maybe there will be one. I'm quoting 0:19:03.119 --> 0:19:06.239 here as a political favor to a government that at 0:19:06.280 --> 0:19:07.600 some point is going to want to have an election. 0:19:08.359 --> 0:19:09.200 How does that work? 0:19:09.320 --> 0:19:13.359 What is that actual relationship as far as you can tell, Yeah, no, 0:19:13.640 --> 0:19:14.720 I am quoting somebody. 0:19:14.840 --> 0:19:15.919 Yeah, yeah, it's a. 0:19:17.440 --> 0:19:21.160 There was that there some It's definitely in the reason 0:19:21.200 --> 0:19:22.919 some people, some people do. 0:19:23.400 --> 0:19:26.560 Do think that the bank has to get ahead ahead 0:19:26.600 --> 0:19:30.920 of the game here, because if it's necessary to cut 0:19:31.119 --> 0:19:35.800 rates economically, and you're already in the process of an election, 0:19:35.960 --> 0:19:38.880 so there's the campaign has started, et cetera. You cut 0:19:39.000 --> 0:19:41.359 rates at that point, say three weeks after the election 0:19:41.560 --> 0:19:43.240 election is called. I mean, it is going to become 0:19:43.280 --> 0:19:46.440 a massively political issue and there will be cries of 0:19:46.640 --> 0:19:49.640 foul play about the bank doing it if they. 0:19:50.240 --> 0:19:50.840 Clear you think that? 0:19:51.520 --> 0:19:54.119 Is it a rule or is it an expectation that 0:19:54.160 --> 0:19:55.680 they wouldn't do anything during an election. 0:19:55.760 --> 0:19:58.640 I don't think. I think they wouldn't do anything during 0:19:58.640 --> 0:20:01.399 an election. So I went back through the data, and 0:20:01.720 --> 0:20:04.159 they did do it during an election campaign once. I 0:20:04.200 --> 0:20:05.960 think it was two thousand and one, but it was 0:20:06.080 --> 0:20:09.439 like two days after the election was cooled, so they 0:20:09.480 --> 0:20:12.680 were obviously already planning it, but they wouldn't. I don't 0:20:12.680 --> 0:20:14.840 think they would want to start cutting in an election 0:20:15.000 --> 0:20:18.440 if they were if they were already you know, done 0:20:18.560 --> 0:20:20.719