Speaker 1: Good morning. It's Thursday, the third of August in London.
Speaker 1: This is the Bloomberg Daybreak You Up podcast. I'm Caroline
Speaker 1: Hepka and.
Speaker 2: I'm Stephen Carroll. Coming up today, the CEO of the
Speaker 2: energy giant SSE tells us the government needs to reassure
Speaker 2: markets on green investments.
Speaker 1: The Bank of England is getting ready to raise interest rates,
Speaker 1: but will they opt for twenty five or fifty basis points?
Speaker 2: And former US Treasury secretaries call for action on the
Speaker 2: country's ballooning debt.
Speaker 1: Let's start with a roundup of our top stories. The
Speaker 1: UK government will boost the funding available to renewable energy projects,
Speaker 1: with the struggling offshore wind industry benefiting the most. The
Speaker 1: total pot available for the current subsidy auction will increase
Speaker 1: by twenty two million pounds to two hundred and twenty
Speaker 1: seven million pounds, so up by eleven percent. It comes
Speaker 1: as the CEO of the UK's largest renewable electricity company, SSE,
Speaker 1: has told the Bloomberg UK Politics podcast the government needs
Speaker 1: to reassure markets on its green credentials. Alistair Phillips Davies
Speaker 1: says that green investment depends on the government's words.
Speaker 3: It's for them to reassure markets and make sure that
Speaker 3: there is a clear commitment to creating the industries that
Speaker 3: we've started creating so successfully. In the UK.
Speaker 1: Phillips Davies is overseeing dog A bank going online today.
Speaker 1: This is the UK's largest offshore wind farm, which will
Speaker 1: power some seven percent of the national grid when fully operational.
Speaker 1: We're going to dive into that story in more detail
Speaker 1: in just a few minutes.
Speaker 2: The Bank of England is expected to raise rates again later,
Speaker 2: with a recent inflation slow down giving policymakers scope to
Speaker 2: scale back the size of hikes. Economists and investors are
Speaker 2: anticipating the benchmark lending rate we'll go up by at
Speaker 2: least a quarter point to five and a quarter percent.
Speaker 2: The view comes as the latest inflation unemployment data showed
Speaker 2: easing pressure on prices. Speaking to us little earlier, and Elitch,
Speaker 2: deputy for Economist at the CBI, told us UK GDP
Speaker 2: has held up surprizingly well in the face of higher rates.
Speaker 4: The economy has proved more resilient so far than many
Speaker 4: of us were expected, and indeed the last growth data
Speaker 4: out from the URNS reinforced that point. But of course,
Speaker 4: with so many fixed rate mortgages due still to refix
Speaker 4: at higher rates. There's huge vulnerability in the border economy.
Speaker 2: Anna Leitch also told us the UK recession is now
Speaker 2: a distinct possibility. We will bring you the decision from
Speaker 2: the Bank of England live here in Bloomberg at twelve
Speaker 2: pm London time, with a press conference led by Governor
Speaker 2: Andrew Bailey half an hour later.
Speaker 1: Now, two former US Treasury secretaries have called for action
Speaker 1: to tackle the country's ballooning debt burden. Speaking just hours
Speaker 1: after Fitch stripped America of its Triple A credit rating,
Speaker 1: Hank Paulson and Timothy Geidner shared their thoughts with David
Speaker 1: Weston on Blueberg's Wall Street Week, and Hank Pauson didn't
Speaker 1: mince his words.
Speaker 5: Our first culture jectory is concerning, but we're a rich
Speaker 5: country and we've got time to deal with it. But
Speaker 5: we need to do some things in the next few
Speaker 5: years to change that trajectory, and I think that's going
Speaker 5: to be very important. To do that. It's going to
Speaker 5: take doing things on both the spending side and the
Speaker 5: revenue side.
Speaker 1: Paulson's successor as Treasury chief, Timothy Geidner, was asked by
Speaker 1: David weston whether it would take a crisis before Washington
Speaker 1: did address its borrowing needs. He answered, quote, I hope not.
Speaker 1: You get that full conversation on the Wall Street Week podcast,
Speaker 1: available on Apple, Spotify, or wherever you listen.
Speaker 2: JP Morgan CEO Jamie Diamond says he's unhappy with plans
Speaker 2: for more stringent capital rules in the United States. The
Speaker 2: comments come just days after regulators released the long awaited proposals.
Speaker 2: Speaking to CNBC, Diamond said the measures will take will
Speaker 2: make mortgage and small business lending harder for banks.
Speaker 6: It's phurely disappointing. I think these rules are I mean,
Speaker 6: I've always thought g Sify was a joke. Now we
Speaker 6: have operation overs capital, which I think is equally bad
Speaker 6: based on my rules, which kind of make no sense
Speaker 6: to me. And if I was the Feder'd be very
Speaker 6: careful about saying their models are perfect.
Speaker 2: Diamond went on to say that hedge funds and private
Speaker 2: equity firms are dancing in the streets over tightening regulations
Speaker 2: for banks. The proposal from regulators would require big uslanders
Speaker 2: to set aside more capital, with the eight largest financial
Speaker 2: firms facing an increase of about nineteen percent.
Speaker 1: Donald Trump is expected to appear in a Washington federal
Speaker 1: court today to face new charges that he conspired to
Speaker 1: obstruct the twenty twenty presidential election. This is the third
Speaker 1: criminal case against the former president as he seeks a
Speaker 1: new term in the White House. Speak to NBC, Trump's
Speaker 1: lead lawyer, John Lauro, says that he believes the former
Speaker 1: president will win.
Speaker 7: They have to demonstrate beyond a reasonable doubt that number one,
Speaker 7: President Trump did not believe that all these irregularities were true,
Speaker 7: and number two that he did something to corruptly obstruct justice.
Speaker 7: And they can't prove that because everything he did was
Speaker 7: to get at the truth.
Speaker 1: John Laura joined the former president's legal team in July
Speaker 1: and says that the charges are entirely politically motivated.
Speaker 2: And treasuries are proving to be an increasingly ineffective hedge
Speaker 2: for stocks as the two move in tandem. Bond prices
Speaker 2: usually move in the opposite direction to the stock market,
Speaker 2: but the two started to move in sync as the
Speaker 2: Fed raised rates aggressively last month. The correlation between the
Speaker 2: asset classes was the highest since nineteen ninety six. This
Speaker 2: means the classic sixty to forty portfolio of stocks and
Speaker 2: bonds offered investors little protection from volatilities. Those are some
Speaker 2: of our top stories on the program this morning, on
Speaker 2: a day of course, we're looking ahead to the Bank
Speaker 2: of England decision as well. I'm interested in the latest
Speaker 2: results that we've had from Next So shares in the
Speaker 2: high street retailer in the UK up about a tenth
Speaker 2: of one percent, which, considering the overall fort Sea is
Speaker 2: down by one point four percent, is not bad actually,
Speaker 2: But essentially this is a big high street bell Weather,
Speaker 2: one that's often considered to be a good guide to
Speaker 2: the health of the British retailers in general, saying that there,
Speaker 2: you know, things are looking quite good for pry sales
Speaker 2: rising at seven percent compared to last year. Their profit
Speaker 2: forecasts are up. They had said that warmer weather lull
Speaker 2: was potentially going to help people buy more clothing just
Speaker 2: in June. I think that was an early summer protection
Speaker 2: that has yet.
Speaker 1: To realize as I carry my umbrella around the whole time. Yeah, look,
Speaker 1: that's that's a very good business story. But I also
Speaker 1: want to talk about this one that's going to be
Speaker 1: I think quite entertaining. Perhaps maybe we've got another American
Speaker 1: star coming to the UK. This is Tom Brady who
Speaker 1: is apparently buying a steak in Birmingham, Birmingham City. Let
Speaker 1: me just add minority steak. But it seems like so
Speaker 1: many stars. I mean, he's actually a sporting legend in
Speaker 1: the US obviously MVP of Well I think five times
Speaker 1: in a row. But yeah, buying this stake. So it
Speaker 1: does seem to be that Premier League football is open
Speaker 1: to lots of foreign interest the minute.
Speaker 5: Yeah.
Speaker 2: Absolutely, I'll bring a bit of American star power, I think,
Speaker 2: to to Birmingham City while they're at it. Maybe well,
Speaker 2: let's turn to us another story that we're following here
Speaker 2: very closely in the UK, and this is the latest
Speaker 2: around renewable energy. A big development today with a new
Speaker 2: after a wind farm opening, but also moves by the
Speaker 2: government to update their subsidy scheme, something that has been
Speaker 2: the subject of conversation you've been having, Carola.
Speaker 1: Yeah, absolutely, So the Dogger Bank off your wind farm,
Speaker 1: which is the largest UK wind farm to date, is
Speaker 1: being switched on today. So we had a conversation with
Speaker 1: the CEO of the SSE which is the Footy one
Speaker 1: hundred company, Alisa Phillips Davis, about this Lizzy Burden and
Speaker 1: I about the impact that dogger Bank is going to
Speaker 1: have coming online. Remember that the UK is a world
Speaker 1: leader really and in wind power. I know we sometimes
Speaker 1: hear that phrase used often, but I think it's true.
Speaker 1: The UK also wants to triple offs your wind capacity
Speaker 1: by twenty thirty. The UK's got this legally binding target
Speaker 1: of becoming carbon neutral by twenty fifty. But then it
Speaker 1: is also so in this week that the Prime Minister
Speaker 1: announced hundreds of new licenses for oil and gas production
Speaker 1: in the North Sea. So we had this big conversation
Speaker 1: with Phillips Davis, the first part of which is just
Speaker 1: on the success of dogger Bank and what it will
Speaker 1: mean to UK energy production.
Speaker 8: Have a listen.
Speaker 3: It's a huge milestone. You're talking about a power band
Speaker 3: that will generate something like twenty terri or hours of energy,
Speaker 3: which is six or seven percent of the total UK
Speaker 3: requirement for energy, and the fact that it's doing that
Speaker 3: price is far far cheaper than we're seeing in the
Speaker 3: wholesale market at the moment, about fifty pounds. You know,
Speaker 3: that's a real boost for UK consumers getting much cheaper energy,
Speaker 3: and it's also homegrown energy, so we're getting much more
Speaker 3: energy security out of it as well. And then all
Speaker 3: on the back of that you're also getting create clean
Speaker 3: green energy too, which is carbon free.
Speaker 2: Okay, so that is in a relation to this dugger
Speaker 2: bank after a wind farm. Can that be repeated though, Caroline.
Speaker 1: Well, I think there are a few issues here. First,
Speaker 1: there's a question mark about the commitment. I think of
Speaker 1: Rishie Sunak, who is not Boris Johnson, and maybe there
Speaker 1: have been some concerns about how committed he is, you know,
Speaker 1: whether he is as committees perhaps as the previous Prime
Speaker 1: minister has been. Then there's the big competition from the
Speaker 1: US and Joe Biden. The enormous amount of money that's
Speaker 1: going into renewables. Does that suck investment out of other
Speaker 1: countries or away from other countries? And then there's also
Speaker 1: just the nuts and bolts of the whole business, And
Speaker 1: this is where the government announcement today this morning is
Speaker 1: so interesting. So it's about the cost of building wind farms,
Speaker 1: and then it's also about the subsidy scheme that the
Speaker 1: government backs. These contracts for difference is what they're called,
Speaker 1: and it gives the energy produces a certain price a
Speaker 1: cap of how much you know, they can make from
Speaker 1: the renewable energy that they then supply. Now, the government
Speaker 1: has just announced this morning that it's going to increase
Speaker 1: contract for difference in the amount of money the total
Speaker 1: pot for that by twenty two million pounds. That's an
Speaker 1: eleven percent increase, and so the offshore wind will benefit
Speaker 1: the most. The boss of SSE, though, has some doubts
Speaker 1: about whether that's going to be enough to overcome things,
Speaker 1: so we asked him about also, you know, all of
Speaker 1: these threats I suppose to renewable energy sources in the
Speaker 1: UK have listened to his response.
Speaker 3: It's for them to reassure markets and make sure that
Speaker 3: there is a clear commitment to creating the industries that
Speaker 3: we've started creating so successfully in the UK, things like
Speaker 3: dog a bankll There'll be two thousand jobs created around that.
Speaker 3: In moving forward, we've obviously got the opportunity to build
Speaker 3: thousands of mega wat's more plans to create more jobs
Speaker 3: in the UK, to bring supply chain here as well.
Speaker 3: Certainly something that we're working on with people to make
Speaker 3: sure that some of the big technology providers, whether they
Speaker 3: be turbines, towers or cables come to the UK and
Speaker 3: invest and build facilities in These are all things that
Speaker 3: I think all political parties can agree on, and I'm
Speaker 3: sure there'll be an important part of what all the
Speaker 3: political parties put out in their manifestos and what they
Speaker 3: look to brief on as we go into the autumn
Speaker 3: and winter.
Speaker 2: Curring this conversation happening at a very timely moment, the
Speaker 2: Energy Secretary has just met with all of those big
Speaker 2: energy companies as well to discuss this issue.
Speaker 1: Yeah, so it's meant to be Energy week, So yes,
Speaker 1: a lot is going on in this space. Grant Shapps
Speaker 1: met with well SSE for one, but also DF Shell
Speaker 1: BP and they've all got these big billion pound plans
Speaker 1: to invest in low and zero carbon projects. So it
Speaker 1: is very important. So the SSC CEO they're talking about, well,
Speaker 1: it's up to the Conservative government to really demonstrate their
Speaker 1: commitment here, which I think is quite a big statement
Speaker 1: in and of itself. But then also we asked him,
Speaker 1: well what about Labor, the opposition party, what do you
Speaker 1: think of their overtures, their policies. Here's what he said.
Speaker 3: We've certainly seen some strong rhetoric Rachel Reeves talking about
Speaker 3: wanting to be the next Green Chancellor and more generally
Speaker 3: from labor you know, significant ambitions, even more so potentially
Speaker 3: than the current government. They've signaled that they want to
Speaker 3: go quicker in terms of getting to twenty thirty and
Speaker 3: twenty thirty five. Having clean, homegrown energy is going to
Speaker 3: be really really important and I think all all the
Speaker 3: parties will see that.
Speaker 1: So that was Alistair Phillips Davies, the CEO of SSE,
Speaker 1: the fifty one hundred constituent on the day that they
Speaker 1: bring online dog a Bank, biggest UK offshore wind farm
Speaker 1: so far, so really important moment for the UK's green
Speaker 1: energy transition. Can Britain remain a world leading offshore wind power?
Speaker 1: The government hoping with this extra pot of money for
Speaker 1: renewables that they've just announced this morning that that will
Speaker 1: be the case. But yeah, it's a really interesting moving story.
Speaker 2: Certainly, is that fall into you to come on today's
Speaker 2: UK Politics podcast here on Bloomberg. Let's turn next to
Speaker 2: today's Bank of England decision. Though another rate I expected,
Speaker 2: but some questions over the size of that increase. I've
Speaker 2: seen you at UK economist Dan Hansen joins US and
Speaker 2: Studio with my mining to you, Dan Markets pricing in
Speaker 2: a roughly one in three chance of a fifty basis
Speaker 2: point hike. Could we be in for a surprise?
Speaker 8: I think so. Yeah, I think there's there's a real
Speaker 8: risk of a surprise. Clearly, it wouldn't be quite as
Speaker 8: big a surprise as it was in June, where I
Speaker 8: think people were far sort of more focused on the
Speaker 8: twenty five basis point move. But I think if you
Speaker 8: look at the data, it has been really mixed. You've had,
Speaker 8: it's been very well documented. But the good news on
Speaker 8: headline CPI inflation, but setting against that, wage growth is
Speaker 8: still accecul our eting, particularly in the private sector, services
Speaker 8: inflation is still very high. So there's this balance between
Speaker 8: headline inflation dropping and coming down, which is obviously the
Speaker 8: target measure and that's what the bank is ultimately charged
Speaker 8: with bringing back to two percent. But there are signs
Speaker 8: of persistence in the inflation process and that's something that
Speaker 8: they may may be more concerned about and opt for
Speaker 8: a fifty basis point hike.
Speaker 1: Okay, what are you going to be watched out for
Speaker 1: then today in terms of guidance in terms of future
Speaker 1: hikes in the rate path.
Speaker 8: Yeah, there's a lot to watch today because we get
Speaker 8: the forecast as well. But I think for us there
Speaker 8: are three things. Really. The first thing is the guidance,
Speaker 8: as you say, and whether that's essentially the data dependence remains,
Speaker 8: I think it will. I mean all the other major
Speaker 8: central banks are stepping into that realm. The Bank of
Speaker 8: England sort of moved there in February, has been dragged
Speaker 8: higher by the data. All these data surprises we've been had,
Speaker 8: we've had, but I think they'll stick with the guidance
Speaker 8: they've got. I think the other thing to look at
Speaker 8: is the medium term inflation forecasts and the meat what
Speaker 8: they call the mean inflation forecast, so that is the
Speaker 8: risk adjusted forecast, the forecast that is adjusted for the
Speaker 8: policymaker's perception of risks around inflation. And if they think
Speaker 8: that's going to be around two percent in the medium term,
Speaker 8: that's a pretty good indication that they think market pricing
Speaker 8: is broadly in the right place. So market pricing currently
Speaker 8: looking for a peak of five seventy five percent. The
Speaker 8: other final thing I'll be watching is the near term
Speaker 8: headline inflation forecast, because that gives us an idea of
Speaker 8: what the bank is expecting in the near term, and
Speaker 8: we get a measure of what a data surprise looks
Speaker 8: like relative to the bank's expectations.
Speaker 2: Okay, what about quantitas of tightening? Is that something that
Speaker 2: we should be expecting news on today?
Speaker 8: Yeah, that's an interesting one. There's seen. There's been a
Speaker 8: lot of chatter about that, and I think I think
Speaker 8: it will they'll wait till September to make the announcement,
Speaker 8: but it's been I think a broader point here is
Speaker 8: that it's been so well trailed what they're going to
Speaker 8: it's very likely they're going to do somewhere between eighty
Speaker 8: and one hundred billion for next year. We think it's
Speaker 8: going to be about ninety billion, and that purely reflects
Speaker 8: the fact that next year relatives this year, where they've
Speaker 8: done about eighty billion, there's going to be more of
Speaker 8: the stock of guilt's rolling off naturally, so redemptions occurring,
Speaker 8: but they'll keep the active sales. The amount of active
Speaker 8: sales roughly similar at ten billion pounds a quarter, So
Speaker 8: that leads you to the sort of ninety billion number
Speaker 8: that we think. Well, they'll ultimately announce, but I think
Speaker 8: they'll probably wait till September. But as you say, Stephen.
Speaker 8: I think there is a risk of it today, but
Speaker 8: I don't think it's going to be a big surprise.
Speaker 1: Yeah, And I think I would point listeners to our
Speaker 1: Bloomberg opinion columnist Marcus Ashworth on this point. I mean
Speaker 1: his perspective. I think it's quite interesting talking about the
Speaker 1: very big losses of being taken on the sales, you know,
Speaker 1: as the Bank of England does this, but the bank
Speaker 1: is determined to sort of stay the course anyway. He
Speaker 1: had some quiet Yeah, obviously a.
Speaker 4: Very opinion view.
Speaker 1: Yes, I mean quite far, but I think it's really interesting.
Speaker 2: On the day Marcus has never met offense that he
Speaker 2: hasn't summer assaulted over to try and move to one
Speaker 2: point of view, Dan, I am interested in this idea
Speaker 2: of the bank over tightening and how much it's conscious
Speaker 2: of the risk that you know, this this is going
Speaker 2: to push the economy into perhaps a worse recession that
Speaker 2: it may already may or may not already be heading for.
Speaker 8: Yeah, I mean they are going to be conscious of that.
Speaker 8: And I think one thing that's really interesting around this
Speaker 8: is the mood music from the government. So if you
Speaker 8: go back to the end of May, you had the
Speaker 8: Chancellor saying he'd be quite comfortable with recession if it
Speaker 8: meant bringing inflation down. We've now had essentially a one
Speaker 8: eighty with the advisors. We've had the scoop by our
Speaker 8: Bloomberg News colleagues saying the advisers are worry about worried
Speaker 8: about the bank overtightening now and I think I think
Speaker 8: both those the Chancellor's initial comments would have played into
Speaker 8: the NPC's thinking at the June meeting, giving it essentially
Speaker 8: it's like a green light to go to go harder,
Speaker 8: to do more. And I think, you know, in the
Speaker 8: back of their minds, and they are an independent body,
Speaker 8: so I'm not saying there's political influence, but I think
Speaker 8: in the back of their minds they'll be. There'll be
Speaker 8: some there'll be conscious that things have changed. The narrative
Speaker 8: has changed, the narrative has changed globally as well. That's
Speaker 8: the other thing with the FED and the ECB. But
Speaker 8: I think domestically, I know it's only one inflation print,
Speaker 8: but that everything looks a little bit rosier now on
Speaker 8: the inflation front, we have recali Soon Act saying yesterday
Speaker 8: it was like at the end of the tunnel on
Speaker 8: the inflate in the inflation fight, so you can see
Speaker 8: that the mood music from the government has shifted slightly,
Speaker 8: But there is the way.
Speaker 2: Is he right on that as they're lied at the
Speaker 2: end of the tunnel allow inflation? How does that compare
Speaker 2: to your forecast?
Speaker 8: Well, I think they will get to five at the
Speaker 8: end of this year, so they'll meet their goal of
Speaker 8: halving inflation. The thing that I am sort of been
Speaker 8: worried about for some time now is that it's not
Speaker 8: getting to five or maybe even four, but it's getting
Speaker 8: from three or four down to two. That's the challenge.
Speaker 8: So you're going to get the easy wins, and we're
Speaker 8: going to keep getting easy wins five to four, maybe
Speaker 8: even three, but getting from three to two is the challenge.
Speaker 8: And that's where you're talking about over tightening. The question
Speaker 8: is does the bank just do what it needs to
Speaker 8: do to get to two, because from their perspective, that
Speaker 8: is an overtightening, that's doing their job. But perhaps from
Speaker 8: a sort of someone in the UK's perspective, a recession,
Speaker 8: the recession that's needed to get from three to two
Speaker 8: would be deemed overtiming and doing too much. Will we
Speaker 8: just be happy with three percent inflation rather than two
Speaker 8: percent inflation if it meant not underset or creating all
Speaker 8: these job losses.
Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the
Speaker 2: stories making news from London to Wall Street and beyond.
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Speaker 1: I'm Caroline Hepka and.
Speaker 2: I'm Stephen Carroll. Join us again tomorrow morning for all
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Speaker 2: on Bloomberg Daybreak Europe