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Speaker 1: Good morning. It's Wednesday, the nineteenth of July in London.

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Speaker 1: This is the Blomberg Daywakeup podcast. I'm Caroline Hipka and.

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Speaker 2: I'm Lizzie Burden. Coming up today. Cooling UK inflation drives

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Speaker 2: down bets on Bank of England hikes.

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Speaker 1: Tatar picks Breton for its new battery plants.

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Speaker 2: And the cities offering bankers a thirty percent jump for

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Speaker 2: starting salaries. Let's start with a roundup of our top stories.

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Speaker 2: Britain's inflation rates slowed more than expected in June. Year

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Speaker 2: on year, CPI rose by seven point nine percent last month.

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Speaker 2: That's a sharp drop from the eight point seven percent

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Speaker 2: reading in May. Core inflation also fell to six point

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Speaker 2: nine percent from seven point one percent, suggesting the quickest

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Speaker 2: series of interest rate increases in three decades may be

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Speaker 2: starting to rain in soaring prices. The downside surprise could

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Speaker 2: tip the balance in favor of a twenty five basis

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Speaker 2: point hike when the Bank of England's policymakers meet to

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Speaker 2: set rates next week.

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Speaker 1: Tatar has announced ay four bid billion pound investment to

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Speaker 1: build a gigafactory in Somerset. The news, reported by Bloomberg yesterday,

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Speaker 1: would create one of Europe's largest battery makers. Bloomberg's James

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Speaker 1: Walcock says it's being hailed as a major win for

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Speaker 1: Rishi Sunak.

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Speaker 3: In a global fight for subsidies. You are seeing the

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Speaker 3: US and Europe devoting large amounts of money, time attention

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Speaker 3: to winning these kinds of companies over and the UK

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Speaker 3: governments say will very like to be pointing out the

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Speaker 3: fact that the company Tartar chose the UK over Spain

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Speaker 3: in a victory for both of over another European country,

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Speaker 3: as a sign that they have been able to convince

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Speaker 3: a business to locate in the UK despite Brexit, despite negativity,

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Speaker 3: despite fears around inflation. Nevertheless they persevered.

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Speaker 1: James Walcock added that the plant is expected to receive

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Speaker 1: hundreds of millions of pounds in government subsidies. It comes

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Speaker 1: as the UK has struggled to attract significant auto industry

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Speaker 1: investment in the aftermath of Brexit.

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Speaker 2: The number of profit warnings issued by UK listed companies

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Speaker 2: has risen for them seventh consecutive quarter. Companies listed on

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Speaker 2: UK exchanges issued sixty six profit warnings in the second quarter,

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Speaker 2: as surging inflation and rising interest rates squeezed margins. According

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Speaker 2: to the report by Ernst and Jung's strategy consulting arm

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Speaker 2: Ey Parthenon, eighteen percent of UK listed companies issued a

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Speaker 2: profit warnings in the blast year alone, excluding the pandemic.

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Speaker 2: That's the highest level since two thousand and eight.

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Speaker 1: Now Wall Street jants are finally seeing signs of a

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Speaker 1: life in their capital markets businesses. Bank of America and

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Speaker 1: Morgan Stanley joined JP Morgan and City Group in beating

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Speaker 1: analyst expectations for equity underwriting revenue in the second quarter.

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Speaker 1: Speaking of Blueberg, Morgan Stanley chairman and CEO James Gorman,

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Speaker 1: so that things are also looking up for investment banking.

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Speaker 4: I do believe it's bottomed. Every ceo I'm talking to

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Speaker 4: has tilted to a more forward looking pasture. So I

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Speaker 4: think deals will start getting downe Whether they happen in

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Speaker 4: the back half of this year, I'm not social. It

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Speaker 4: might be, It might be next year that it comes.

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Speaker 4: Will definitely be. It will be during next year when

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Speaker 4: we see it, if not this year.

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Speaker 1: Second quarter profits at the bank run by James Gorman

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Speaker 1: fell thirteen percent to two point one eight billion dollars.

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Speaker 1: That contrast with rival Bank of America, which saw its

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Speaker 1: second quarter profits saw revenue from fixed income, currencies and

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Speaker 1: commodities trading rows eighteen percent to two point eight billion

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Speaker 1: dollars for Bank of America.

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Speaker 2: Microsoft shares hit an intra day record on Tuesday after

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Speaker 2: the software giant gave pricing details for its corporate artificial

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Speaker 2: intelligence products. Microsoft three sixty five Copilot will cost thirty

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Speaker 2: dollars a month per worker, on top of what most

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Speaker 2: business customers already pay. Bloomberg Intelligences Anna Agrana says the

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Speaker 2: price is high, but he expects firms to.

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Speaker 5: Pay it at the end of the day.

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Speaker 4: This is a company that's coming up with products way

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Speaker 4: before then anybody else.

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Speaker 1: Is trying to figure out their strategy.

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Speaker 4: So I think this year shows that Microsoft is well

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Speaker 4: aheaded in this game compared to the other software windows.

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Speaker 1: And it's not just the Office Suite.

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Speaker 2: I mean this really has direct impact on their cloud business.

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Speaker 2: And now, Agrano says Bloomberg Intelligence does expect the subscription

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Speaker 2: costs to come down as AI technology development ramps up.

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Speaker 1: And finally, a US soldier has been detained in North

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Speaker 1: Korea after crossing over the heavily armed border. It's reported

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Speaker 1: that the twenty three year old intentionally traveled from South

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Speaker 1: Korea in an apparent effort to escape being sent home

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Speaker 1: after being charged with assault. The US Defense secually, Lloyd

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Speaker 1: Austin says that he's concerned about the man's welfare.

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Speaker 6: We're closely monitoring and investigating the situation and working to

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Speaker 6: notify the soldiers next to Ken and engaging to address

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Speaker 6: a sense of it.

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Speaker 1: So the US Defense actually Lloyd Austin speaking there now.

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Speaker 1: Americans detained in North Korea are often sentenced to years

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Speaker 1: of hard labor, but typically are released several months later.

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Speaker 1: Those are a few of our top stories this morning.

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Speaker 1: How about to pay rise?

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Speaker 2: Oh anytime, Caroline, Yeah.

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Speaker 1: No, one says no to that. They thirty percent, though,

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Speaker 1: if you're in Hong Kong, they've seen such an exodus

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Speaker 1: of talent that starting salaries is beginning to shoot up,

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Speaker 1: and it's especially for financial services for tech jobs. So yeah,

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Speaker 1: it's seen a big jump in the last few months.

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Speaker 2: Anyway, thirty percent for a new recruit that is enormous.

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Speaker 2: And you can see as well that the border reopening

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Speaker 2: with China's given the industry a big boost. This is

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Speaker 2: not exactly what you want in an inflationary world.

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Speaker 1: However, no, indeed, but I suppose if you're trying to

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Speaker 1: compete with Singapore, then you have to do your best.

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Speaker 1: I mean, look, salaries are still typically higher in Hong

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Speaker 1: Kong than Singapore. But you know, we've had loads of

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Speaker 1: stories about the number of bankers being hired in Singapore,

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Speaker 1: and you also see that in Hong Kong. That kind

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Speaker 1: of rush for talent, the need for workers means that

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Speaker 1: the jobless way is at a four year load. Two

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Speaker 1: point nine percent had a tough time during the pandemic.

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Speaker 1: The board is open between Hong Kong and China now though,

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Speaker 1: so that has also changed matters.

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Speaker 2: Caroline, Well, that is a very interesting story. There's only

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Speaker 2: one story on my mind in my other heart. As

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Speaker 2: UK correspondent, I have to say, this inflation number for

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Speaker 2: the UK really is a big deal, the first downside

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Speaker 2: surprise we've had after four upside surprises.

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Speaker 4: This.

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Speaker 2: I can hear the cheers coming from the Bank of

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Speaker 2: England across the road from where we are and from

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Speaker 2: Number ten Downing Street. Of course, it's the Prime Minister's

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Speaker 2: top priority to have inflation by the end of the year,

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Speaker 2: and so yes, CPI dropping to seven point nine percent

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Speaker 2: from eight point seven percent last month. I was just

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Speaker 2: speaking to John Glenn, the Chief Secretary to the UK Treasury,

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Speaker 2: along with Anna Edwards on Bloomberg TV. He says that

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Speaker 2: this shows the government strategy is working. Take a listen.

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Speaker 5: Yeah, what I'm doing is controlling public spending to make

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Speaker 5: sure that we don't do anything that adds fuel to inflation.

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Speaker 5: But of course we welcome these figures. There's no complacency

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Speaker 5: though here in the Treasury. We work very closely with

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Speaker 5: the Bank. As you say, they do interest rates, we

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Speaker 5: do government spending. But these are tough times for families

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Speaker 5: in the UK. But we going be relentless in our

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Speaker 5: commitment to have inflation and get it down to the

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Speaker 5: long term trend two percent.

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Speaker 2: But John, are you going to do anything actively to

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Speaker 2: reach your number one target of halving inflation by the

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Speaker 2: end of the year. For example, x Bank of England

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Speaker 2: policy maker Kate Barker suggested, you should raise taxes.

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Speaker 5: Well, look, we don't want to raise taxes. What we're

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Speaker 5: trying to do is make sure that we spend money wisely.

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Speaker 5: We had a spending review a few years ago. Obviously

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Speaker 5: meeting those numbers is now really hard in a high

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Speaker 5: inflationary or higher inflationary environment. So my job is to

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Speaker 5: make sure that we spend wisely, that we accommodated the

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Speaker 5: Pay Review Body announcements last week for public sector pay

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Speaker 5: that increased between six six and a half seven percent

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Speaker 5: for one of the workforces. We did that by not

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Speaker 5: by taxing more, not by borrowing more, by asking government departments,

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Speaker 5: by asking cabinet ministers to absorb that additional pay requirement.

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Speaker 5: So we're being relentless in focusing on making sure that

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Speaker 5: we manage public spending and don't add to the inflatory

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Speaker 5: pressure which the IMF and others have warned us we

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Speaker 5: would do if we borrowed more.

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Speaker 2: And John, even though these numbers are a pleasant surprise,

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Speaker 2: being big economics still reckons we're going to have a

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Speaker 2: recession here in the UK market. See a fifty percent

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Speaker 2: chance for fifty basis point hike from the Bank of

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Speaker 2: England again and it's August meeting. Do you see a

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Speaker 2: risk that the Bank of England overdoes it?

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Speaker 6: Look?

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Speaker 5: I'm not commenting on the Bank of England. They make

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Speaker 5: judgments independently. My job is to focus on government spending

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Speaker 5: public spending as Chief Secretary, that's what I do. I

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Speaker 5: also don't make predictions about future economy. When I came

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Speaker 5: into office nine months ago in this role, I noticed

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Speaker 5: various predictions about whether or not we're going to have

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Speaker 5: a recession. I see those come and go. What I've

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Speaker 5: got to do is relentlessly focus on the job to

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Speaker 5: help bring inflation down using the leavers that I have

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Speaker 5: as Chief Secretary, and that's what I'm going to continue

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Speaker 5: to do.

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Speaker 7: What's your assessment of why the UK inflation story appears

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Speaker 7: stickier than other parts of the G seven. I mean

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Speaker 7: Germany's inflation six point four, France five point three, the

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Speaker 7: US three percent, Italy in the six is, Canada two

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Speaker 7: point eight, Japan three point two. Hours is falling. It's

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Speaker 7: come in lower than anticipated, but it's still higher than

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Speaker 7: all of those. What is the UK the government's assessment

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Speaker 7: of why that is well.

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Speaker 5: I think Germany's inflation rate went up in June and

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Speaker 5: obviously they're in recession. Every economy is finding this challenging.

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Speaker 5: I don't. I do recognize that there are some differences,

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Speaker 5: and obviously that would be about the way the labor

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Speaker 5: market works. So we've obviously made some supply side changes

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Speaker 5: to try and get more people into the labor market

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Speaker 5: without creating inflationary pressures. Also, the effect of the tripling

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Speaker 5: of gas prices had a different effect on here in

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Speaker 5: the UK as compared to the US and some of

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Speaker 5: the other economies. But I think what is acknowledged is

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Speaker 5: that we're on the same path as many of the

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Speaker 5: European economies. We're just a few months behind them in

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Speaker 5: some cases.

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Speaker 7: Do you think you're doing it? I mean, you mentioned

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Speaker 7: there the supply side changes, You mentioned the role of

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Speaker 7: the labor market. Do you think that there should be

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Speaker 7: more done to address labor market issues to try and

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Speaker 7: bring down inflation further?

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Speaker 5: Well, in the spring budget we put a comprehensive package together.

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Speaker 5: We are trying to get people back into the workforce

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Speaker 5: and our working pension secutors we're relentlessly working on that.

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Speaker 5: We also put a childcare package together to get people

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Speaker 5: more people back into work, and that is anticipated to

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Speaker 5: bring one hundred thousand people back into the workforce. We

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Speaker 5: are seeing those numbers improving all the time, more and

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Speaker 5: more people coming back to work, so that will help,

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Speaker 5: and obviously has been one of the factors the tightness

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Speaker 5: in that labor market, which has caused those inflatory pressures.

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Speaker 5: But today's numbers are encouraging, but there's no complacency. We

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Speaker 5: must keep going.

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Speaker 1: So that was John Glenn, the chief sectually to the Treasury,

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Speaker 1: speaking to you and to Anna Edwards on BlueBag TV.

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Speaker 1: There's also been reaction from the Chances. I think it's

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Speaker 1: interesting that John Glenn sort of admitted the differences between

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Speaker 1: how inflation has affected the UK versus other G seven countries.

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Speaker 1: The question that Anna Edwards put to him, one that

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Speaker 1: the government hasn't often wanted to talk about. Is wanted

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Speaker 1: to focus on the similarities between the UK and other

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Speaker 1: G seven economies. And so if you listen to Jeremy Hunt,

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Speaker 1: who spoke earlier this morning, he talks about that too.

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Speaker 1: We can see from other countries that if we work hard,

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Speaker 1: you know, we will succeed and we can put this

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Speaker 1: very difficult period for households behind us.

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Speaker 2: Yeah, but if you read between the lines, it's very

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Speaker 2: difficult for the government to criticize the Bank of England,

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Speaker 2: especially after what happened to Liz Trust. They want to

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Speaker 2: be seen singing from the same hymn sheet. But of

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Speaker 2: course there are economists, many of them out there saying

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Speaker 2: that the Bank of England was to dubvish on the

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Speaker 2: way into this and hence why we still have inflation

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Speaker 2: at nearly four times the Bank of England's target.

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Speaker 1: Yeah. Absolutely, it was what Glenn was saying. You know

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Speaker 1: that we're just lagging behind. Let's bring in our senior

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Speaker 1: UK economists, Dan Hanson on this point. Dan, great to

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Speaker 1: have you on the program. So this inflation reading for

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Speaker 1: the UK is cooler than expected, is it though? A

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Speaker 1: big down shift?

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Speaker 6: So first of all, thanks for having me on. I

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Speaker 6: think the first point to make here is that a

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Speaker 6: lot of this was to do with petrol petrol prices

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Speaker 6: or fuel prices and food prices, and that was kind

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Speaker 6: of a lot of that was sort of baked in

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Speaker 6: before we before the number dropped, so we knew that

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Speaker 6: was coming. The big news really is on core inflation,

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Speaker 6: and that is good news that we've had a drop

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Speaker 6: back to six point nine percent. And if you if

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Speaker 6: you cast your mind all the way back to May,

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Speaker 6: which feels like a long long time ago. Now when

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Speaker 6: the banking put out its forecast, then it was expecting

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Speaker 6: seven point nine percent for the gene's CPI reading. So

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Speaker 6: the Bank of the sort of. The CPI numbers are

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Speaker 6: back in line. The headline CPR numbers, I should say,

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Speaker 6: are back in line with the Bank of England's forecast,

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Speaker 6: So it is it is some good news, I think.

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Speaker 6: I mean it goes to the point that you were

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Speaker 6: making there and what John Glenn was saying about the

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Speaker 6: big drops the nature of the way that the energy

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Speaker 6: price cap works. So what the way household energy bills

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Speaker 6: in the UK are calculated is that you get chunky

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Speaker 6: drops or lumpy drops I should say, in the CPI numbers,

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Speaker 6: And we'll get one of those in July, and we'll

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Speaker 6: get another one of those in October, so in time.

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Speaker 6: You know, this idea of catch up, it should happen,

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Speaker 6: but are always going to be a little bit behind

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Speaker 6: as long as this price cap exists, because it prevents

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Speaker 6: the falls in energy or in wholesale energy prices coming

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Speaker 6: into the figures quickly, which is what's happened in mainland Europe.

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Speaker 2: And so can the Bank of England now just do

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Speaker 2: a twenty five base point hike in August and where

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Speaker 2: do you see the peak from here on?

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Speaker 6: Yes, you know that's I still think the mark. I

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Speaker 6: think the market's probably right that it's fifty to fifty,

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Speaker 6: I don't. I don't think this has sort of sealed

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Speaker 6: the deal one way or the other. We lean towards

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Speaker 6: a twenty five basis point hike, so that would mean

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Speaker 6: that the fifty in June was a one off. But

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Speaker 6: it's you know, it's it's very uncertain what they're going

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Speaker 6: to do. But you know, our view is that they're

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Speaker 6: going to go for twenty five in August. But I think,

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Speaker 6: going back to the point I was making about core inflation,

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Speaker 6: yes it's good news it dropped, but it's still looking sticky,

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Speaker 6: and particularly servicing services inflation is extremely high. So I

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Speaker 6: think they're going to go. They'll go again in both

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Speaker 6: September and November, so we see a peak of five

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Speaker 6: seventy five. And actually, if you look at the market today,

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Speaker 6: the pricing around the August meeting hasn't moved a bit,

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Speaker 6: but it's still fifty to fifty. Between twenty five and

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Speaker 6: fifty basis points.

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Speaker 2: You still see a recession.

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Speaker 6: Why, I think five seventy five is too much for

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Speaker 6: five seventy five peek, right, even though that's what I

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Speaker 6: think the bank everyone's going to do. I think that's

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Speaker 6: probably too much the economy, and they could probably sit

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Speaker 6: at five, maybe even a little bit lower, and still

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Speaker 6: get the job done. But they've clearly quite impatient, and

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Speaker 6: there's obviously pressure coming from the government as well, so

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Speaker 6: I think they're going to overdo it a little bit.

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