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Speaker 1: Good morning. It's Tuesday, the eleventh of July here in London.

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Speaker 1: This is the BlueBag Daybreak You Up podcast. I'm Caroline

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Speaker 1: Hepkit and.

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Speaker 2: I'm Stephen Carroll. Coming up today. Wages continue to surge

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Speaker 2: as the Bank of England's Governor Andrew Bailey insists that

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Speaker 2: inflation will drop markedly this year.

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Speaker 1: And UK pension funds agreed to pump billions of pounds

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Speaker 1: into British startups.

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Speaker 2: Plus some big news for passive investors, The Nasdaq plans

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Speaker 2: to rebalance the index away from an over concentration in

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Speaker 2: megacap tech. Let's start though, with an end up of

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Speaker 2: our top stories. UK wage growth is still at a

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Speaker 2: level that the Bank of England Governor Andrew Bailey says

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Speaker 2: is fueling inflation. Average weekly earnings excluding bonuses held at

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Speaker 2: seven point three percent in the three months through May,

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Speaker 2: after figures for the period through April were revised upwards.

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Speaker 2: The data comes as Bailey used his Mansion House speech

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Speaker 2: to signal his belief that inflation will continue to fall

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Speaker 2: this year. Here's what he told the event.

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Speaker 3: Looking ahead, UK headline inforation is set to fall markedly

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Speaker 3: over the remainder of the year. This largely to lower

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Speaker 3: energy prices as last year's substantial increases drop out of

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Speaker 3: the annual calculation, but food prices should fall to as

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Speaker 3: lower commodity prices feed through to prices in the shops.

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Speaker 2: Andrew Bailey's comments also coincide with data from the British

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Speaker 2: Retail Consortium showing like for like food sales jumped by

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Speaker 2: nine point eight percent in the second quarter. UK inflation

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Speaker 2: has proved more persistent than another major economies, with the

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Speaker 2: eight point seven headline rate more than four times the

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Speaker 2: BEES two percent target.

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Speaker 1: Nine of the UK's biggest pension funds have agreed to

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Speaker 1: invest five percent of assets in their default funds into

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Speaker 1: startups by twenty thirty. Have EVA, Legal in General, MG

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Speaker 1: and Phoenix have all committed to the move, which could

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Speaker 1: unlock fifty billion pounds for unlisted firms if the rest

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Speaker 1: of the industry follows suit. The Chancellor, Jeremy Hunt, insists

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Speaker 1: that the plan is not mandatory.

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Speaker 4: We're not forcing anyone to invest anywhere they don't want

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Speaker 4: to invest, but we want to remove the barriers so

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Speaker 4: that they can have a balanced portfolio and therefore increase

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Speaker 4: the returns to their own pension fundholders.

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Speaker 1: In addition to the pensions deal, the Chancellor also announced

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Speaker 1: plans to roll back parts of the EU's legislation that

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Speaker 1: forces financial firms to separate the cost of investment research

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Speaker 1: from trading expenses at the Mansions House speech that he

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Speaker 1: gave yesterday.

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Speaker 2: Turkey has agreed to support Sweden's bid to join NATO,

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Speaker 2: in a major breakthrough which could change the face of

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Speaker 2: Europe's security. Turkey has been delaying its admissions since last year.

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Speaker 2: Speaking this morning, NATO Secretary General Yain Steltenberg said Europe

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Speaker 2: will be safer with Sweden in the alliance.

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Speaker 5: Sweden will become a full fledged member of this alliance.

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Speaker 5: That's good for Sweden, it's good for Turkia, and it's

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Speaker 5: good for holl of NATO, and it's also good for

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Speaker 5: the Baltic region.

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Speaker 2: The native Secretary general. Theyre announcing one of the most

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Speaker 2: significant changes in the European security landscape since Russia's invasion

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Speaker 2: of Ukraine.

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Speaker 1: Now the Nasdaq is set to do something unprecedented and

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Speaker 1: manually rebalance its index. Bloobogs James Wilcock reports.

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Speaker 6: Now, when is too big not a good thing? Well,

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Speaker 6: when you're one of the US's largest six tech companies.

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Speaker 6: They fit a combined market cap of ten trillion dollars

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Speaker 6: for the NASDAK. That's more than half the index, which

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Speaker 6: breaks regulator rules, and the exchange is planning an intervention

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Speaker 6: in two weeks time. It intends to pare back the

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Speaker 6: waiting of its largest stocks. The heavyweights dropped on the news,

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Speaker 6: reversing some of their gains from this year's AI boom.

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Speaker 6: In London. James Wilcock Bloomberg day Break Europe.

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Speaker 2: Three federal Reserve officials came out in favor of more

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Speaker 2: race rises this year, although the central Bank skipped its

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Speaker 2: last chance to hike. San Francisco FED President Mary Daily

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Speaker 2: was one of those, saying the risks of doing too

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Speaker 2: little outweigh those of doing too much.

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Speaker 6: We're likely to need a couple more rate hikes over

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Speaker 6: the course of this year to really bring inflation back

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Speaker 6: into a path that's a longer sustainable two percent path.

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Speaker 7: Daily.

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Speaker 2: They're speaking in Washington. Meanwhile, Atlanta FED President Rafael Bostic

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Speaker 2: has been an outlier, saying the Fed can be patient

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Speaker 2: and hold well into twenty twenty four. New inflation data

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Speaker 2: out tomorrow may weigh on policymakers ahead of the next

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Speaker 2: rate meeting in two weeks time.

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Speaker 1: Just lastly, bank bonuses have plunged across the board in London,

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Speaker 1: according to a survey of two hundred and fifty bankers

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Speaker 1: by the global recruitment consultancy Dartmouth Partners, the global slump

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Speaker 1: in deal making cut pay for investment bankers at almost

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Speaker 1: every level. Last year. The highest tier of vice presidents

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Speaker 1: made thirteen percent less, and all but the most junior

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Speaker 1: associates saw their total compensation fall. As for UK based bankers,

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Speaker 1: Goldman Sachs is the best paying investment bank for twenty

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Speaker 1: twenty one that fell the hardest in twenty twenty two,

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Speaker 1: with the associate's total compensation down twenty eight percent and

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Speaker 1: vice presidents pay falling almost twenty five percent. So those

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Speaker 1: were a few of our top stories then for you

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Speaker 1: this morning, Look, I think that it's important also to

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Speaker 1: talk a little bit about the context in In terms

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Speaker 1: of the job's data, money markets are now pricing in

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Speaker 1: Bank of England raids at six and a half percent.

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Speaker 1: By March, one hundred and fifty basis points expected to

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Speaker 1: be added in terms of the Bank of.

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Speaker 2: England and in terms of how that's affecting consumers as well.

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Speaker 2: The latest numbers from Moneyfacts showing the average rate for

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Speaker 2: two year home loans rising to six point six six percent,

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Speaker 2: the highest and almost fifteen years. So there is the

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Speaker 2: transmission of monetary policy that we're seeing playing out. We

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Speaker 2: know that we've been talking about lags because of the

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Speaker 2: way that the UK mortgage market is structured, but six

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Speaker 2: point six six percent is eyewatering and something that's going

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Speaker 2: to be a huge concern for people as they're looking

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Speaker 2: at their budgets when it comes to refinancing.

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Speaker 1: No, absolutely, I thought it was really interesting that in

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Speaker 1: the last how we spoke to Haig Bathgate, who's head

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Speaker 1: of investments at Atomos, which is owned by oak Tree

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Speaker 1: Capital Management. He's a rare sort of outlaw, I think,

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Speaker 1: actually talking about just how significant the Bank of England

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Speaker 1: policy era is. He thinks that if they were to

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Speaker 1: raise another fifty basis points, he thinks that be compounding

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Speaker 1: the problems that it's a policy mistake to keep raising

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Speaker 1: interest rates by the Bank of England.

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Speaker 2: Well, let's dig into the story a little bit further

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Speaker 2: than and the latest data we've had on the UK

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Speaker 2: labor Marcus and bring in our senior UK economist Dan

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Speaker 2: Hansen for more on this. Dan, this reading on this

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Speaker 2: inflation number, I mean, it just looks like more pressure

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Speaker 2: on the Bank of England.

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Speaker 6: Yeah, it does.

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Speaker 7: That's absolutely right. I mean they're absolutely laser focused on

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Speaker 7: wage growth and also the inflation data as well. But

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Speaker 7: in this report we've had this morning, it's going to

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Speaker 7: be the wage growth number that's going to alarm them,

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Speaker 7: particularly in the private sector. It you know, ticked up

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Speaker 7: a little bit in the private sector seven point seven percent,

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Speaker 7: So we're we're looking at a very strong reading. I mean,

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Speaker 7: just to put some context around it, reading of sort

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Speaker 7: of three three and a half percent is what's needed

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Speaker 7: to have to be consistent with two percent inflation. So

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Speaker 7: in miles away from that. Clearly all of that said,

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Speaker 7: one thing just add is that if you were the

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Speaker 7: bank is obsessed with the sort of prices side of

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Speaker 7: the labor market if you like the wages numbers, but

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Speaker 7: if you look on the quantity sides, the employment numbers,

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Speaker 7: the unemployment numbers, there is some sign there of things

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Speaker 7: beginning to loosen a little bit. And I think that

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Speaker 7: particularly for those of a more dubbish disposition on the

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Speaker 7: Bank of England's Military Policy Committee. That would be a

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Speaker 7: positive sign, but I think the Bank's just it's just

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Speaker 7: not willing to wait. And Steve and you were talking

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Speaker 7: about lags in the mortgage market, there are also lags

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Speaker 7: in the labor market. You know that it takes time

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Speaker 7: for the weakness in the label, the loosening and the

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Speaker 7: labor market to feed through to the pay numbers. But

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Speaker 7: the Bank's just not willing to wait to see that

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Speaker 7: show up.

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Speaker 1: I think that is interesting, isn't it. I mean, the

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Speaker 1: unemployment did tick up, more workers did come back into

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Speaker 1: the job market, you know, looking for work, and yet Dan,

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Speaker 1: we were speaking to Manpower Group this morning, to Chris Gray,

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Speaker 1: the director there for the UK, and he was saying

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Speaker 1: there's still a skills mismatch. People may be looking for work,

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Speaker 1: but you know, they may not have the right skills

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Speaker 1: to move into a different end to it, et cetera.

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Speaker 1: But it is interesting that the unemployment rate is ticking

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Speaker 1: up in the UK.

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Speaker 7: Yeah, you're right, and I think the way you've characterized

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Speaker 7: it there, Caroline, is still correct in the sense that

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Speaker 7: the leg market is still extremely tight. But we're coming

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Speaker 7: from a position of as I say extreme tightness. It's

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Speaker 7: a little bit looser, but on any sort of historical metric,

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Speaker 7: the labor market is still tight, so the bank has

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Speaker 7: cover to carry on lifting interest rates. It's just that

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Speaker 7: these things tend to move when they start moving. If

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Speaker 7: you look at history, they tend to move very very quickly.

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Speaker 7: So if things do start to turn, you know you're

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Speaker 7: talking about there someone talking about the policy mistake and

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Speaker 7: the bank lifting rates by too much, you know, you

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Speaker 7: feel you feel like that that is becoming an ever

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Speaker 7: increasing risk. As they look at data, they're essentially looking

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Speaker 7: in their rear view mirror at lagging data as data

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Speaker 7: as it comes out, and they're putting very little weight

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Speaker 7: and they've said this very little weight on their fore

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Speaker 7: car and just being driven by the data itself. So

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Speaker 7: the risk of some overcooking it and going too high

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Speaker 7: is becoming greater by the day, particularly with rates at

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Speaker 7: this level. I mean, we're going to hear about the

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Speaker 7: Financial Stability Report tomorrow. Will be interesting to hear there

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Speaker 7: about how the bank thinks about the resilience of the

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Speaker 7: household and corporate sector to rising rates, because they are

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Speaker 7: getting to levels now that they previously warned could run

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Speaker 7: a risk of financial instability.

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Speaker 2: Andrew Bailey saying that he expects inflation to come down

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Speaker 2: markedly this year. Is that a realistic expectation looking at

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Speaker 2: where the data is now.

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Speaker 7: Yeah, I mean I thought that was I actually thought

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Speaker 7: that was quite a sort of duffish comment when I

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Speaker 7: heard it, because I thought, given exactly what you've just said, Stephen,

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Speaker 7: given everything that's happened, it's quite hard to have a

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Speaker 7: lot of confidence that that is going to take place.

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Speaker 7: I mean, we've spoken about this many times, but I

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Speaker 7: still think it will come down. And that's purely a

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Speaker 7: mechanical thing. It's not much to do with what's been

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Speaker 7: happening this year. It's a lot to do with the

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Speaker 7: fact that you're going to get these base effects. With

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Speaker 7: being a year on year comparison, they will fall out.

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Speaker 7: The big risers in prices last year will fall out

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Speaker 7: of the annual comparison. So I still think, you know,

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Speaker 7: a five five or so number by the end of

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Speaker 7: the year looks reasonable. But that's very different to even

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Speaker 7: a few months ago, you know, we were talking and

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Speaker 7: the idea of maybe three percent by the end of

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Speaker 7: the year look possible. So there is there is a

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Speaker 7: lot of uncertainty there, and I just thought it was

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Speaker 7: quite interesting that he sort of doubled down on that point,

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Speaker 7: having been burned by it so many times, particularly over

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Speaker 7: the past the past few months with the data, so

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Speaker 7: I did think that was interesting.

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Speaker 1: Okay, Dan, thank you so much for being with us.

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Speaker 1: Spoomberg senior UK economist Dan Hanson there well.

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Speaker 2: Also speaking of the Manchion House dinner, was the Chancellor

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Speaker 2: announcing this agreement among nine of Britain's largest pension providers,

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Speaker 2: including a Viva, Legal in General and M ANDG, to

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Speaker 2: allocate five percent of assets in their default funds to

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Speaker 2: unlisted stocks by twenty thirty.

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Speaker 1: Now, the plan laid out in Jeremy Hunt's speech last

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Speaker 1: night could unlock fifty pounds of investment in growth companies.

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Speaker 1: A little earlier, Nicholas Lars, the Lord Mayor of the

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Speaker 1: City of London, joined me and Lizzie Burden here in

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Speaker 1: this studio. Of course, he's been a big back at

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Speaker 1: a major proponent of this. He's very positive about the move.

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Speaker 5: Yeah, I'm delighted. This is a great example of how

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Speaker 5: UK long term savings firms have come together to do

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Speaker 5: something that's right for customers and for the UK economy.

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Speaker 5: First and foremost, this is about pensioners. It's about trying

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Speaker 5: to enhance the value of pension pots and putting them

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Speaker 5: into asset classes that are going to give them the

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Speaker 5: best possible returns. But I think it's important to recognize

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Speaker 5: that this is the if you'd like, the what, it's

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Speaker 5: not the how. What is we want to allocate more

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Speaker 5: money from people's pension savings into the growth economy, into

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Speaker 5: unlisted equities. The how is where my future growth fund

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Speaker 5: comes in.

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Speaker 8: But I suppose it comes back to the question that

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Speaker 8: we've been asking for weeks. This was where more money

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Speaker 8: would be made, more return on investment. Why wouldn't they

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Speaker 8: have done it already.

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Speaker 5: Because they haven't had the capability in a fragmented pension

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Speaker 5: system to do so. And that's why it's really important.

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Speaker 5: So the likes of Aviva and LERG and M ANDNG

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Speaker 5: have very big asset management firms and they have the

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Speaker 5: capability to do unlisted equity investment and they do so.

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Speaker 5: Making this commitment for them is not such a big deal.

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Speaker 5: But for the other you know, this is sixty five

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Speaker 5: percent of the industry signing up to this compact and

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Speaker 5: that's just the nine largest players. We expect others to

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Speaker 5: join that. But this is we need to give a

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Speaker 5: vehicle through which other pension funds can easily make these investments.

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Speaker 5: And it's important to do this in a large scale

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Speaker 5: because we absolutely must diversify risk as intelligently as we can,

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Speaker 5: so that we know this is a higher risk asset class.

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Speaker 5: But if it's done intelligently, we can limit risks through diversification,

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Speaker 5: enhance returns and also compress costs.

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Speaker 1: Okay, I mean maybe a large number of firms, but

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Speaker 1: the overall pensions industry in the UK controls two and

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Speaker 1: a half trillion pounds worth of assets, so this is

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Speaker 1: fifty billion pounds in comparison, So you know, it's certainly

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Speaker 1: only a very small part of the industry. Is it

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Speaker 1: simply going to incentivize consolidation in the pensions industry? Is

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Speaker 1: actually what the driving force is going to end up being.

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Speaker 5: I don't think so. I think that needs to happen anyway.

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Speaker 5: We've got twenty seven thousand different pension pots in the

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Speaker 5: DC pension system that we need consolidation. That will happen anyway.

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Speaker 5: But what this does is it accelerates the opportunity. This

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Speaker 5: is a sort of way of it if you like

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Speaker 5: pulling assets rather than consolidating pensions. So this gives us

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Speaker 5: a leap ahead to try and do this. We're not

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Speaker 5: trying to do this overnight, though. The undertaking here is

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Speaker 5: to get to fifty billion by twenty thirty. Fifty billion

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Speaker 5: is the number that comes from the fact that DC

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Speaker 5: pensions at the moment of about five hundred and fifty

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Speaker 5: billion in the that's growing by ten percent a year

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Speaker 5: with new contributions. The power of compounding, Warren Buffett's favorite

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Speaker 5: thing means that by twenty thirty, five hundred and fifty

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Speaker 5: becomes a trillion. Five percent of a trillion is fifty billion.

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Speaker 8: And the Chancellor is it pains to emphasize that this

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Speaker 8: is not mandatory, but why shouldn't it be if it's

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Speaker 8: so good in exchange for the tax relief that pension

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Speaker 8: providers enjoy.

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Speaker 5: Look, I think there are lots of different ways to

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Speaker 5: look at this. But you know, pension trustees have fiduciary responsibilities.

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Speaker 5: We want them to take those responsibilities seriously. You can't

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Speaker 5: at one stage say take your responsibilities seriously and invest

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Speaker 5: intelligently in all these asset classes if we give you

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Speaker 5: the opportunity to do so, and if we release the

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Speaker 5: cap on costs, which has been another feature of driving

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Speaker 5: them towards passive funds, and then at the same time

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Speaker 5: say actually, we're taking the power of authority away from you.

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Speaker 5: So look, I think this is a much more British

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Speaker 5: way to do things. It's a voluntary pact. You say

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Speaker 5: to people, we expect you to do this. You have

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Speaker 5: an opt out. You need to tell us why you're

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Speaker 5: opting out, because we think this is a good thing

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Speaker 5: to do. And frankly, if the nine largest players, speaking

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Speaker 5: for two thirds of the pension pots say this is

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Speaker 5: something that we think is in the interests of customers,

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Speaker 5: I think everybody will say the same.

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Speaker 1: What sort of businesses will qualify? How will UK startups

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Speaker 1: be defined when it comes to unlisted assets.

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Speaker 5: I mean, I think we need to we need to

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Speaker 5: look at the you know, when we start putting together

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Speaker 5: the Future Growth Fund. These are things that we will

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Speaker 5: look at very carefully. But this is not going to

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Speaker 5: be exclusively UK Again, this has got to be driven

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Speaker 5: by delivering the best returns for pension savers. The good

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Speaker 5: thing is that we know that We've got massive foreign

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Speaker 5: direct investment into this sector from the most sophisticated investors

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Speaker 5: in the world. So these are companies that people really

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Speaker 5: want to invest in. The driver of this is that

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Speaker 5: our pension pots weren't invested in this asset class and

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Speaker 5: we want to give them the opportunity to do so.

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Speaker 1: That that to me is very interesting in that case

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Speaker 1: because then it's sort of investing in global startups, which

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Speaker 1: is a different proposition.

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Speaker 5: So surely this is unquestionably again to be because our

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Speaker 5: UK startups are so attractive to international investors. This is

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Speaker 5: something and you know, the Future Growth Fund will absolutely

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Speaker 5: look at, you know, UK regional growth companies. This there's

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Speaker 5: a there's a really good opportunity here to stimulate across

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Speaker 5: the whole of the UK. As I travel around you know,

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Speaker 5: Scotland and Wales and Northern England that there are an

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Speaker 5: amazing number of wonderful startup companies needing accelerator funding and

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Speaker 5: this will be the bridge to it. I have no

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Speaker 5: doubt at all.

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Speaker 8: But you're already seeing startups some of Britain's best listing elsewhere.

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Speaker 8: Surely what was needed was more of a stick, more

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Speaker 8: of a carrot to get companies to list here and

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Speaker 8: grow here, be invested it in here.

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Speaker 5: Yeah, I think. You know, there's a lot of work

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Speaker 5: going on under the auspices of Julia Hoggett at the

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Speaker 5: London Stock Exchange, through the Capital Markets Industry Task Force

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Speaker 5: in particular, looking at what are the constraints, what has

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Speaker 5: driven the de equitization in our markets and the challenges

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Speaker 5: that we've had on the listing side. There's still a

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Speaker 5: lot that goes very right about the London Stock Exchange,

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Speaker 5: and there's there's tweaking that's required. You know, the FCA

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Speaker 5: has come out with new listing rules. There an announcement

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Speaker 5: of a package of reforms suggested by the Chancellor yesterday.

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Speaker 5: We're going to get this right. But this, I think

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Speaker 5: is a really important thing that sits at the heart

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Speaker 5: of a change in risk culture in this in this country.

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Speaker 5: We have to get more risk accepting.

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Speaker 1: Yes, Except then it's very difficult to talk about accepting

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Speaker 1: risk if the Chancellor goes out and his main sort

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Speaker 1: of push on domestic media is to talk about a

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Speaker 1: booster returns, improving the outcomes for pension fund holders to

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Speaker 1: the tune of one thousand pounds a year. That's almost

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Speaker 1: You know, that's the advert isn't it to UK pension

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Speaker 1: is is that it's going to boost your pension pot

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Speaker 1: by one thousand pounds a year, which is difficult if

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Speaker 1: you also have to accept risk that that might not happen.

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Speaker 5: Well, look, we need when we look at the most

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Speaker 5: sophisticated pension systems in the world. We look at the

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Speaker 5: Canadian state pension systems, the Australian supers, they have between

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Speaker 5: thirty five and fifty percent of assets invested in unlisted

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Speaker 5: asset classes. We've only got seven percent. Only one percent

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Speaker 5: is in unlisted equities. Unlisted equities is only one part

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Speaker 5: of this of the solution here, I expect over the

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Speaker 5: next six or seven years to see most of our

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Speaker 5: pension systems significantly increasing their exposure to unlisted asset classes

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Speaker 5: other than unlisted equities. We're going to we have we'll

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Speaker 5: have huge requirements to fund infrastructure projects, private credit, real estate.

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Speaker 5: So you know, this is it's going to be transformative.

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Speaker 5: This is just that one thousand pounds was taken on

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Speaker 5: a sort of an average pension pot of twelve thousand pounds.

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Speaker 5: It's a twelve percent increase.

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Speaker 8: Basically, I just want to ask the big picture. You

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Speaker 8: had lots of reforms and arms by Jeremy Hunt, the

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Speaker 8: Chancellor last night, to what extent do they compensate for

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Speaker 8: the damage of Brexit to the City of London.

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Speaker 5: Look, I think it's almost impossible to disaggregate what's been

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Speaker 5: happening because we've had the Ukraine situation as well. The

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Speaker 5: city has put Brexit way in the rear view mirror.

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Speaker 5: You know, we're looking now at you know what, what

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Speaker 5: can we do? We have the ability to be more

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Speaker 5: agile from a regulatory point of view. We've got the

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Speaker 5: engagement of the PRA and the FCA, We've got the

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Speaker 5: support of the Bank of England. We've got politicians of

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Speaker 5: both parties saying we want to stimulate growth and investment.

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Speaker 5: Rachel Reeves is very supportive of what we're doing on

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Speaker 5: the pension side. This is a private sector initiative you know,

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Speaker 5: we've got and we're putting in place. Also a long

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Speaker 5: term strategy for the City of London, a road map

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Speaker 5: twenty thirty and beyond about the changes that we need

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Speaker 5: to make to make us continue to be very competitive

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Speaker 5: as a preeminent global financial center.

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Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

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