Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to in the City.
Speaker 1: Each week we unpack a story that's crucial to the
Speaker 1: world's financial capitals. I'm Allegristratton. Chancellor Rachel Reeves has delivered
Speaker 1: her Spring statement, and in Reeves's address to Parliament, she
Speaker 1: said her task is to secure Britain's future in a
Speaker 1: world that is changing before our eyes.
Speaker 2: Mister speaker, the job of a responsible government is not
Speaker 2: simply to watch this change. This moment demands an active government,
Speaker 2: a government not stepping back, but stepping up.
Speaker 1: So this week on the podcast, we are looking at
Speaker 1: whether the government's effort to step up is enough to
Speaker 1: secure the UK economy and whether Britain now has a
Speaker 1: financial plan that factors in the unstable global outlook.
Speaker 3: Welcome to the City of London.
Speaker 2: The City of the City, The City of London.
Speaker 4: Again between and the financial heart of the country.
Speaker 3: The City, the City.
Speaker 1: Welcome to in the City, then clear of the doors.
Speaker 1: I'm joined by Chief UK Economists with Bloomberg Economics Dan
Speaker 1: Hansen and senior Economics reporter Phil Aldrich. And for those
Speaker 1: that you can't see, which is everyone, They've both been
Speaker 1: on their mobiles.
Speaker 4: Trying to work out what's going on.
Speaker 1: Swopping and sharing.
Speaker 3: Did you see this?
Speaker 1: Did you see that? Okay, I thought there was a
Speaker 1: mini spring in the spring statement. I felt like Rachel
Speaker 1: Reeves seemed quite chipper.
Speaker 3: Yeah, Phil, Yeah, I think it definitely was not the
Speaker 3: sort of gloomy show that we thought it was going
Speaker 3: to be. The growth forecast from the OBR was largely unchanged.
Speaker 3: Right at the end of the forecast. In their tables
Speaker 3: they suggest it's well, they say it's the economy is
Speaker 3: slightly bigger. They did this dynamic scoring on the planning reforms,
Speaker 3: which wasn't predicted. They say that by the end of
Speaker 3: the parliament you'll be getting zero point two percent permanent
Speaker 3: growth as a result of these deregulation early deregulations of
Speaker 3: the planning system. They say that adds one hundred and
Speaker 3: seventy thousand homes you get to one point three million,
Speaker 3: which is not far off their one point five million
Speaker 3: home target. So those are really positive things for the markets.
Speaker 3: The big thing was her headroom had disappeared was actually
Speaker 3: it was pretty nasty. They went from nine point nine
Speaker 3: billion down to four point one billion deficit. The whole
Speaker 3: lot she's made the whole lot back and it didn't
Speaker 3: require quite such severe public service cuts and welfare cuts
Speaker 3: as were expected. There's been a bit of jiggery pokery
Speaker 3: around the changing from current spending that's the day to
Speaker 3: day staff to casual spending. Yeah, so that's some largely
Speaker 3: from aid to defense, which is relatively painless compared with.
Speaker 1: Nasty Tree when you wrote about didn't you.
Speaker 3: Yeah, yeah, trickery wizardry exactly. But ultimately it hasn't been
Speaker 3: quite the horror show that some people were theory.
Speaker 1: I mean, we're all in Bloomberg HQ, not in the
Speaker 1: Commons chamber, and I suspect we'll hear quite quickly from
Speaker 1: our reporters who will be able to see the looks
Speaker 1: on Labor MP's faces, because that was quite striking when
Speaker 1: you see the doughnut around the Chancellor, you've got the
Speaker 1: PM and then the cabinet Minster's either side, and obviously
Speaker 1: their poker face. But it will be interesting to learn whether,
Speaker 1: as you say, the mood from the back benches is
Speaker 1: that could have been worse or goodness me, even though
Speaker 1: it wasn't as bad as we thought, it's still going
Speaker 1: to hurt in our mailboxes and in our constituents hearts
Speaker 1: and minds. Dan, you're still are you writing? You texting?
Speaker 1: Are you?
Speaker 4: I am looking at the OBR documentary, not texting my wife.
Speaker 1: I wasn't going to suggest that, but you would get
Speaker 1: to grips with it.
Speaker 4: I think feel something up really nicely. I think when
Speaker 4: I listen to it, it feels like the OBR hand
Speaker 4: is her a bit of a gift. To be honest
Speaker 4: with you, I think it's interesting your point about the
Speaker 4: politics of it. If you look at where the cuts
Speaker 4: of land is in terms of getting the headroom back,
Speaker 4: it's really all welfare. There's a bit on departmental spending.
Speaker 4: We thought there would be something there, we thought would
Speaker 4: probably be a little bit more, but actually it's all
Speaker 4: on welfare and that's really interesting. And I mean the
Speaker 4: other thing, I'm not sure how to interpret it at
Speaker 4: the moment, but just getting yourself back to the headroom
Speaker 4: you had exactly to the decimal point that you had
Speaker 4: in October. It feels very much like I'm just gonna
Speaker 4: do the absolute minimum possible here to get myself down
Speaker 4: to the autumn, which is the next staging post. That
Speaker 4: was my takeaway and I think she would have initially thought,
Speaker 4: I'm going to have to do a lot more here
Speaker 4: on departmental spending. We're going to have the usual questions
Speaker 4: about fiscal fiction. Actually there's been pretty much nothing done
Speaker 4: on it. As a small amount of change in departmental spending,
Speaker 4: but it's not very much. So I think the general
Speaker 4: takeaway is that she has been given For me, at least,
Speaker 4: she's been given a bit of a gift from the OBR.
Speaker 4: I'm not going to sort of start we can get
Speaker 4: into this if you want, but whether it's delayed the
Speaker 4: tough choices, whether the OBR might come back in the
Speaker 4: autumn and say, look, the economy isn't as strong as
Speaker 4: we thought. There's a box in the OBR document about
Speaker 4: tariffs and the impact that could have on the economy.
Speaker 4: So all of those things taken together, I think she's
Speaker 4: on the minimum she needed to get through the event.
Speaker 1: For me, the head room being exactly the same is
Speaker 1: interesting because I think it was criticized that it was low,
Speaker 1: and it was low back in November, and then to
Speaker 1: go for the same low number. Is it she's got
Speaker 1: away with the minimum she can do to lessen the
Speaker 1: political pain, or is it she hasn't learned that lesson
Speaker 1: and actually there'll be another physical event in six months
Speaker 1: time that could be yet more painful, and we'll find
Speaker 1: out in the days ahead, which you know, when we
Speaker 1: get the briefing from the Chancellor's team on why they've
Speaker 1: made that judgment. But before we sort of look look ahead,
Speaker 1: you keep saying, the OBI has been very kind to her.
Speaker 1: They've been kind in being dynamic about how they think
Speaker 1: planning reforms will in the end deliver the growth that
Speaker 1: the government wants.
Speaker 4: Yeah, I mean there are a couple of bits of it,
Speaker 4: so that there's that bit of it which we weren't expecting.
Speaker 4: And we spoke on the podcast previously about all of
Speaker 4: these policies, said it in that speech. They take a
Speaker 4: bit of time and you've got to be patient. And
Speaker 4: sort of point two on the level of the economy
Speaker 4: after five years is it's not very much. It's peanuts.
Speaker 4: You know, it's a rounding error on growth and things
Speaker 4: like that, so it's not very much. So she was
Speaker 4: sort of given a bit of a boost there and
Speaker 4: that actually because of that, it meant that the savings
Speaker 4: she needed to fund and find in terms of spending
Speaker 4: cups were smaller because if the economy is bigger, it
Speaker 4: generates more tax receipts. That's a good news story for her.
Speaker 4: And the other side of it is we've spoken about
Speaker 4: this before as well, is that the Ober is at
Speaker 4: the top end of the pack, if not at the
Speaker 4: top of the pack, when it comes to growth forecasts,
Speaker 4: and that stems from a view about productivity growth. And
Speaker 4: they've sort of made a point in their document that
Speaker 4: they think the level of productivity will be a bit
Speaker 4: lower than they thought in October. But actually if you
Speaker 4: look at the growth numbers, they're still pretty strong. You're
Speaker 4: not shy of two percent in most years, and that
Speaker 4: given recent.
Speaker 3: History, will take that absolutely.
Speaker 4: Absolutely, given recent history, we would definitely take that relative
Speaker 4: to the consensus vieme, certainly relative to our view. So
Speaker 4: I think when you go back to this point of
Speaker 4: moving to the autumn, we'll see what the OBR says.
Speaker 4: They'll have a briefing as well, but whether they're going
Speaker 4: to have sort of look at this in more detail
Speaker 4: over the next six months or so, that's going to
Speaker 4: be something very important to watch as of course, is
Speaker 4: what's going on globally, particularly with the tariffs.
Speaker 1: What is the tariff box saying.
Speaker 3: So it's basically I think I can't remember the specific
Speaker 3: but it's basically saying, if we get if you get
Speaker 3: twenty percent, that was, if you get twenty percent of
Speaker 3: tariffs across the world, as Trump is threatening, that'll knock
Speaker 3: one percent off GDP and all her headroom is gone,
Speaker 3: just like that. So Trump will eliminate her headroom again.
Speaker 3: But then there's other mechanisms as well. They say, should
Speaker 3: our productivity forecast be changed and lowered, then you know
Speaker 3: she loses her headroom and more. There's a couple of
Speaker 3: other warnings in there. I think again there's a debt,
Speaker 3: interest risk, et cetera. So they are pointing out again
Speaker 3: that this is this is a tight margin for sort
Speaker 3: of insurance that she's left herself.
Speaker 4: That's the point is it doesn't And of course it
Speaker 4: matters to people's lives whether these things happen, but purely
Speaker 4: in terms of setting fiscal policy, if you set yourself
Speaker 4: or you set aside a big buffer, then whether the
Speaker 4: OBR downgrades productivity forecast, whether the Trump hits US with tariffs,
Speaker 4: you know you're safe. You're not having to go after
Speaker 4: and constantly rebuilding and every physical event is just this
Speaker 4: obsession with the headroom. If you have a broader fiscal
Speaker 4: strategy where you set yourself some money aside, and of
Speaker 4: course you'll come back to me and you'll say, well,
Speaker 4: they can't. They haven't got the options for that. They
Speaker 4: can't raise taxes, spending two time, they won't. They were welfare, welfare,
Speaker 4: welfare cut. I'm just like heading over the past, but
Speaker 4: welfare cuts. They've not gone too far, but they've already
Speaker 4: done that.
Speaker 1: Uctually, she doesn't have.
Speaker 4: You're caught between the politics of it, which goes I
Speaker 4: think is about the nine point nine where we sort
Speaker 4: of started, and that there's just no political appetite to
Speaker 4: go further than that because the choices it involves, and
Speaker 4: you've caught on the other side of all these potential
Speaker 4: economic shocks that could hit you. And I guess the
Speaker 4: path that they think is the path of least resistance
Speaker 4: is that they do increment. They take the government takes
Speaker 4: incremental action at every fiscal event, which is not in
Speaker 4: an ideal world, that's not how you'd set fiscal policy.
Speaker 1: I mean, you'd like to think she's got a hail Mary,
Speaker 1: she's got something she can see that she can do
Speaker 1: between now and the autumn in order to make that
Speaker 1: not be the case. Phil's raising his eyebrows. The reason
Speaker 1: I'm saying that is because we all know that, because
Speaker 1: of the head round being so small, the story will
Speaker 1: start up tomorrow or right now, what will she do?
Speaker 1: What taxes will she increase? And that isn't just oh,
Speaker 1: how annoying the British press is so annoying, though obviously
Speaker 1: she will be starting to think that. But but it's
Speaker 1: also about confidence, and it's also that people make businesses,
Speaker 1: making families, making choices about the future, which she needs people,
Speaker 1: you know, to be quite kind of bullish about.
Speaker 3: That's definitely the risk is that we get back into
Speaker 3: that terrible cycle of like what is she going to
Speaker 3: do next? Then you get up with the policy uncertainty.
Speaker 3: The fact this time, though, the positive for her this
Speaker 3: time is that the markets have actually responded positively and
Speaker 3: actually imediately. After the budget in October there was a
Speaker 3: big shift up in borrowing costs, which effectively had wiped
Speaker 3: her whole headroom out within days. The reaction this time
Speaker 3: has looks like it's going the other way. So you know,
Speaker 3: if there is a hail Mary. It may be that
Speaker 3: they that the markets are beginning to swing behind the
Speaker 3: labor agenda and that could help her. Obviously, these the
Speaker 3: other things out there in the world that you just
Speaker 3: can't ever plan for this stuff, which is why you do.
Speaker 3: You should have twenty five billion of headroom because it
Speaker 3: gives you enough to absorb any shocks. But if they
Speaker 3: haven't done that, so outside of you know, something external
Speaker 3: which they'll blame on the world is changing as is
Speaker 3: now the repeated mantra, this appears to have been received
Speaker 3: a lot better than October.
Speaker 1: You mentioned that the labor agenda in the market swinging
Speaker 1: behind it. You guys did this amazing piece of work
Speaker 1: that was in one of our podcasts recently about that's
Speaker 1: the schoolcard, we'll call it, you call it, and you
Speaker 1: gave numbers out of ten for each area, and obviously
Speaker 1: seven out of ten you gave to planning. And today
Speaker 1: the OBR has kind of done the same.
Speaker 3: Yeah.
Speaker 4: Absolutely, I mean that was we've been saying for a while.
Speaker 4: Of all the things that labor have they've announced, I personally,
Speaker 4: I think they've announced a lot of positive things. So
Speaker 4: investment spending, they've lifted that, so it's at least flatter
Speaker 4: as a share of GDP. It was falling as a
Speaker 4: share of the GDP before Planning reform. You know these
Speaker 4: you obviously have to take it, as we said in
Speaker 4: the scorecards, slightly with a pinch of salt. In the
Speaker 4: getting up to three hundred thousand homes a year is
Speaker 4: basically doubling the number of homes that are built every year.
Speaker 4: So it's quite a big, big number and a big move. Nonetheless,
Speaker 4: the economic benefit from it, which the OBR have recognized,
Speaker 4: I mean, it's not huge. Point two percent on the
Speaker 4: level of GDP isn't massive, but it's not nothing. And
Speaker 4: I think the OBR, going back to your point your
Speaker 4: questions fill about questions in Downing Street about the OBR.
Speaker 4: Are they getting people's backs up? I think they are.
Speaker 4: They have certainly lowered the bar for scoring policies like
Speaker 4: this and putting it into the forecast, so things like
Speaker 4: planning reform, things like labor supply.
Speaker 3: So that's new as well, it has.
Speaker 4: Been you over the past few years. So Jeremy Hunt's
Speaker 4: Knicks cuts they scored positively. Obviously, the flip side of
Speaker 4: the rise in employer national insurance in October was that
Speaker 4: they scored that negatively for the economy, but capital expenses
Speaker 4: they scored that positively, sort of in the medium term.
Speaker 4: It's a long term and they hadn't been doing that.
Speaker 4: So I think they're listening, certainly to the criticisms that
Speaker 4: have been made. But as I said at the start,
Speaker 4: these things do take time. But I think the planning
Speaker 4: reform thing, yes, of all the things that have been announced,
Speaker 4: that's if you're trying to get out of the sort
Speaker 4: of malaise and thinking about that's the most exciting policy
Speaker 4: for me that the labor have announced. They've come out
Speaker 4: and they seem pretty serious about making in roads into
Speaker 4: the planning system.
Speaker 1: As well phil other bits of the schoolcard. Would you
Speaker 1: make any changes in the quite brutal numbers you go
Speaker 1: some of the other bits of the agenda.
Speaker 3: I suppose we could raise the labor market. We had
Speaker 3: score for their efforts to get employment up to eighty percent,
Speaker 3: And you could say that some of the welfare changes
Speaker 3: may deliver some change, some positive change. And I think
Speaker 3: the OBR has one of the one of the generous
Speaker 3: gifts that, as Dan put it, that they've given them
Speaker 3: as a sort of better labor market outlook. So they're
Speaker 3: just saying that the picture is generally a little bit
Speaker 3: more positive there, so maybe we could go from one
Speaker 3: to three.
Speaker 1: I suspect that's a pretty good place to leave it.
Speaker 1: And you both have to write now, don't you try
Speaker 1: to hear all right? Dan Hansen, Phil Aldric, thank you
Speaker 1: very much, thanks for listening to this week's In the
Speaker 1: City from Bloomberg. This episode was hosted by me alegra Stratton.
Speaker 1: It was produced by Summersadi and Moses and Am Sand
Speaker 1: designed by Blake Maples. Brendan frantzis Newnham is our executive producer.
Speaker 1: Special thanks to Dan Hanson and Phil Aldric. Please subscribe, rate,
Speaker 1: and review wherever you listen to podcasts.