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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. They say's the Bloomberg

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Speaker 1: Daybreak here at podcast, available every morning on Apple, Spotify

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Speaker 1: or wherever you listen. It's Wednesday, the twelfth of February

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Speaker 1: in London. I'm Stephen Carroll.

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Speaker 2: And I'm Lizzie Berden.

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Speaker 3: Coming up today, The Chancellor Rachel Reeves faces another growth

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Speaker 3: downgrade as British recession fears mount.

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Speaker 1: UK taxpayers face a one hundred and fifty billion pounds

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Speaker 1: bill for the Bank of England's quantitative easing program.

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Speaker 3: Plus Trump's tariffs and Germany's troubles collide in Hamburg. We'll

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Speaker 3: have a special report on how protectionism is playing out

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Speaker 3: in the key trading hub.

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Speaker 1: Let's start with a round up of our top stories.

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Speaker 3: The UK's Chancellor, Rachel Reeves, faces a new risk of

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Speaker 3: having to make spending cuts after the government's fiscal watchdog

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Speaker 3: downgraded its growth forecast. Blomerg has learned that the Office

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Speaker 3: for Budget Responsibilities first private report to the Treasury puts

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Speaker 3: the government on course to break its own fiscal rules

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Speaker 3: bogs James.

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Speaker 4: Wilcock, sources of told Bloomberg the latest OBR forecast leaves

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Speaker 4: the Chancellor facing a small deficit. The official report won't

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Speaker 4: be published until the twenty sixth of March and will

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Speaker 4: be updated before then, but the current numbers point to

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Speaker 4: weaker growth, adding weight to the view that the Chancellor

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Speaker 4: will need to raise government revenue in March if she

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Speaker 4: is to stick to her physical rules of covering day

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Speaker 4: to day spending with tax income. This is tomorrow's growth

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Speaker 4: data is expected to show the economy shrank in the

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Speaker 4: last three months of twenty twenty four. Economists expect that

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Speaker 4: GDP fell zero point one percent, following zero growth in

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Speaker 4: the third quarter. Now the OBI will adjust their forecast

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Speaker 4: in coming weeks to match the latest data, but so

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Speaker 4: far surveys are pointing to a slow start to twenty

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Speaker 4: twenty five.

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Speaker 2: In London. James Wilcock Bloomberg Radio.

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Speaker 1: Staying in the UK taxpayer as will end up paying

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Speaker 1: one hundred and fifty billion pounds due to lassers in

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Speaker 1: the Bank of England's quantitative easing program. The Central Bank

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Speaker 1: estimates that plans to sell its barn portfolio will leave

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Speaker 1: it with a whole the size of Britain's entire defense

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Speaker 1: budget for two and a half years. The net lass

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Speaker 1: is a purely financial measure and doesn't reflect the benefits

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Speaker 1: of QE and stabilizing growth and preventing mass unemployment.

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Speaker 3: And the Bank of England Governor Andrew Bailey is warning

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Speaker 3: against the dangers of multi manager head funds. Thus, as

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Speaker 3: the body ramps up its monitoring of non bank finance inmokes,

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Speaker 3: t BIO has more.

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Speaker 5: Ruthless hedge fund risk management policies pot a threat to

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Speaker 5: financial stability. That's according to Andrew Bailey, who said multi

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Speaker 5: manager funds deleverage rapidly in stress conditions, which can exaggerate

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Speaker 5: market moves in a speech yesterday, Whilst the practice allows

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Speaker 5: the firms also known as pod shops, to protect themselves,

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Speaker 5: the Bank of England governor highlighted its potential to create

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Speaker 5: risks to the financial system. The trend is partially responsible

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Speaker 5: for global regulators paying closer attention to rapid growth in

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Speaker 5: finance activity outside of banks. Recent research from the Bank

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Speaker 5: of England found hedge funds, asset managers and pension for

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Speaker 5: could be underprepared in times of crisis. In London, Tima

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Speaker 5: Adebayo Bloomberg Radio, one.

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Speaker 1: Of the world's most successful multi strategy hedge fund founders,

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Speaker 1: Ken Griffin, has criticized Donald Trump's approach to tariffs. Speaking

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Speaker 1: at the UBS Financial Services Conference in Miami, the Citadel

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Speaker 1: CEO said the US president's trade plans dull the country's

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Speaker 1: competitive edge and breed mistrust amongst allies. But there was

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Speaker 1: praise for Elon Musk's efforts to cut government spending, which

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Speaker 1: Griffin said he was grateful for.

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Speaker 6: This is a man who slept on the floor of

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Speaker 6: his factory to make sure testils got produced. He will

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Speaker 6: do what it takes to win. We want people who

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Speaker 6: are in Washington who will do what it takes to

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Speaker 6: help the American taxpayer and the American people win.

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Speaker 1: Ken Griffin's comments, comm as Democrats have questioned the Tesla

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Speaker 1: CEO's unprecedented influence on the US government despite not being

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Speaker 1: an elected official.

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Speaker 6: Well.

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Speaker 3: President Trump has directed agencies to comply with orders for

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Speaker 3: job cuts led by Elon Musk's so called Department of

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Speaker 3: Government Efficiency. A White House fact sheet seen by Bloomberg

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Speaker 3: shows that agencies will be permitted to hire no more

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Speaker 3: than one employee for every four that leave. Musk meanwhile,

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Speaker 3: made a rare appearance in the Oval Office to defend

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Speaker 3: his approach, which is involved obtaining access to sensitive computer

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Speaker 3: systems and employee data.

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Speaker 7: Your tax dollars need to be spent wisely the things

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Speaker 7: that matter to the people. I mean these things like

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Speaker 7: it's just common sense. It's not draconian or radical. I

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Speaker 7: think it's really just saying, best look at each of

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Speaker 7: these expenditures and say, is this actually in the best

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Speaker 7: interest in the people. And if it is, it's proved.

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Speaker 7: But i's not, we should.

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Speaker 4: Think about it.

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Speaker 3: Elon Musk also used the address to increase his attacks

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Speaker 3: on federal officials and judges that he says a stalling

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Speaker 3: progress in cost cutting, calling for impeachment and accusing some

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Speaker 3: of being corrupt and activist.

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Speaker 1: Federal Reserve charge around Powell says the Central Bank doesn't

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Speaker 1: need to rush to adjust interest rates. Speaking to the

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Speaker 1: Senate Banking Committee, Power reiterated his belief that policy makers

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Speaker 1: could be patient before lowering borrowing costs further.

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Speaker 8: As the economy evolves, we will adjust our policy stamps

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Speaker 8: in a manner that best promotes our maximum employment and

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Speaker 8: price stability goals. If the economy remains strong and inflation

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Speaker 8: does not continue to move sustainably towards two percent, we

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Speaker 8: can maintain policy restrained for longer. It's a labor market

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Speaker 8: we're to weaken unexpectedly, or inflation were to fall more

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Speaker 8: quickly than anticipated, we can use policy accordingly.

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Speaker 1: Bontels climbed after Jerome Powell's comments, but moves in rate

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Speaker 1: bets where more muted markets are pricing, and around thirty

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Speaker 1: three basis points of cuts in twenty twenty five, with

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Speaker 1: the next move not expected until September.

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Speaker 2: Well, those are you top stories this morning? On the markets?

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Speaker 3: The stock six hundred is higher a quarter of a percent,

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Speaker 3: the foot CE one hundred is flat to the upside,

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Speaker 3: and SMP E MENI futures are flat to the downside.

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Speaker 1: In a moment, we'll bring you more on the gloomy

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Speaker 1: outlook for the UK economy, plus a view from Germany's

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Speaker 1: biggest port of the rising trade tensions with the US.

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Speaker 1: But in the story I've been reading this morning, Lizzie,

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Speaker 1: I don't know if you are a catastrophist, if you

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Speaker 1: are always for the worst.

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Speaker 3: Stephen, how many mornings have we anchored together?

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Speaker 2: Do you not know that I am a catastrophist?

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Speaker 1: Well, I mean I was trying to give you an

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Speaker 1: out there, but fine, I think you'd really enjoy JP

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Speaker 1: Spinato from Blimber Opinion's latest article about this, The title

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Speaker 1: is I Just found my nuclear war hide away. He's

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Speaker 1: talking about Mendoza and Argentina, which he points out, I mean,

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Speaker 1: it sounds bleak, but actually it's a very nice piece

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Speaker 1: about all of the things that Mendoza has going for it.

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Speaker 1: And it's not just the wine, by the way. He

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Speaker 1: also talks about the fact that it's got mineral wealth,

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Speaker 1: renewable energy. The wine does come at feature, though I

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Speaker 1: will admit it's also got mentioned in starred restaurants and skiing,

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Speaker 1: so really something for everyone. And Jp writes that in

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Speaker 1: the piece, which I mean, he obviously takes much longer

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Speaker 1: to make the argument about the successes of this particular

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Speaker 1: region and the strengths that it has as well, but

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Speaker 1: he says that if the nuclear ballion goes up, that's

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Speaker 1: where he hopes to be.

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Speaker 3: I can vouch for this, having been to Argentina recently.

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Speaker 3: You can find me on a horse World goes to

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Speaker 3: pot I shall be there myself.

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Speaker 1: Julie noted, let's turn back to matters closer to home now,

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Speaker 1: the UK's fiscal challenges. Sources telling Bloomberg the preliminary forecast

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Speaker 1: presented to the Chancellor from the Budget Watchdog, so downgrade

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Speaker 1: to growth, leaving Rachel Reeves at risk of breaking her

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Speaker 1: own budget rules. This ahead of the latest update on

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Speaker 1: UK GDP, which we're going to get tomorrow Bloomberg survey

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Speaker 1: of economists expecting to see a contraction of zero point

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Speaker 1: one percent. Our Politics and economics reporter Lucy Weis joins

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Speaker 1: us now for more.

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Speaker 2: Lucy, good morning.

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Speaker 1: There are several updates in this OBR forecast to come,

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Speaker 1: but what do we know about what the Chancellor has

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Speaker 1: been told?

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Speaker 9: Yeah, so this is the first update that we've had

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Speaker 9: so far, and at the moment it's all under wraps,

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Speaker 9: so we know very limited amounts about it. But what

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Speaker 9: we do know is the Office for Budget Responsibility has

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Speaker 9: downgraded its growth forecast and that's causing a real problem

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Speaker 9: for Rachel Reeves because that means that she's going to

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Speaker 9: be scrambling to meet her budgetary rules at the moment.

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Speaker 9: At the moment, if we take these if we were

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Speaker 9: to take these forecasts as the as the ultimate one,

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Speaker 9: she'd have a small deficit when the actual report is delivered.

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Speaker 9: But we've got two more updates until the final report

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Speaker 9: is delivered in March, so that gives hopefully a bit

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Speaker 9: of time for things to improve a little bit. You know,

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Speaker 9: Rachel Ruths could could you know, adapt some policies to

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Speaker 9: make the outlook of a little bit better, you know,

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Speaker 9: market conditions might improve a.

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Speaker 2: Little bit more.

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Speaker 9: So, Yeah, we've got we've got a few things still

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Speaker 9: in flux until March.

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Speaker 2: So that's the optimistic view, Lucy.

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Speaker 3: But you know, the words iron clad and non negotiable

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Speaker 3: are often uttered by the Chancellor about her fiscal rules.

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Speaker 3: What's she going to have to do if she has

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Speaker 3: run out of headroom?

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Speaker 9: Well, exactly, this is the response that we've had from

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Speaker 9: the Treasury when we put this story to them last night.

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Speaker 9: You know, they have reiterated Rachel Reeves's words that the

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Speaker 9: government's commitment to fiscal rules and sound public finances is

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Speaker 9: non negotiable.

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Speaker 2: But I mean, you know, it does.

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Speaker 9: Leave Rachel Reeves in a really tough position because the

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Speaker 9: moment we've either got she's either able to well, she's

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Speaker 9: promised that she's not going to raise taxes anymore, so

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Speaker 9: that leaves her looking at welfare cuts, or that leaves

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Speaker 9: her looking at other public services cuts. So you know,

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Speaker 9: if she if she really wants to, you know, kind

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Speaker 9: of hit the measure that she's promised her own her

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Speaker 9: own rules, then that's what's open to her.

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Speaker 1: Yeah, indeed, I mean that's going to be some very

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Speaker 1: difficult decisions to be made by the Chancellor if she

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Speaker 1: is presented with this dilemma as well. One of the

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Speaker 1: other factors that, of course we're thinking about more broadly

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Speaker 1: is the uncertainty over trade. And you've been reporting on

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Speaker 1: how the UK is trying to avoid Trump's trade tariffs.

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Speaker 9: Yeah, I mean, that's still very much in flux at

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Speaker 9: the moment. Obviously, we don't know whether Trump is going

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Speaker 9: to levy the UK with any tariffs.

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Speaker 2: At the moment, we've managed to.

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Speaker 9: Escape relatively under touched. You know, we've seen him threatened,

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Speaker 9: Canada threatened, Mexico, threaten, the EU even and it's although

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Speaker 9: we haven't seen any sort of direct measures proposed against

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Speaker 9: the e UK other than you know, around around the

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Speaker 9: steel which is pretty universal. The UK is kind of

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Speaker 9: very much at the whims of whatever happens to anyone else. Obviously,

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Speaker 9: the EU is our largest trading partner, the US is

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Speaker 9: our largest single country, trading partner. So any trade war,

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Speaker 9: any tip for tat spat that happens between the EU

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Speaker 9: and the US, we're going to get caught up in

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Speaker 9: the middle of that, especially Northern Ireland as well. Obviously

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Speaker 9: Northern Irelands post Brexit has this kind of very unique

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Speaker 9: position of being you know, effectively still part of the

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Speaker 9: EU Single Market, but you know, still part of the

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Speaker 9: UK internal market as well, and there's you know, if

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Speaker 9: there is a sort of tit for tat trade war

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Speaker 9: with the EU, it's very uncertain as to how Northern

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Speaker 9: Ireland will fit into that position.

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Speaker 3: Yeah, I was in Brussels last week and listening to

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Speaker 3: the UK's Man for the EU, Nick Thomas Simmons, talking

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Speaker 3: about the need for ruthless pragmatism. But you know, many

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Speaker 3: people asking why not go the whole hog and do

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Speaker 3: some go some way to revert seeing Brexit if you're

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Speaker 3: really serious about growth.

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Speaker 2: But that question exactly.

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Speaker 3: Yeah, Rachel Reeves, as she keeps a close eye on

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Speaker 3: these numbers from the Office for Budget Responsibility. Really great

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Speaker 3: that we've managed to get our hands on a preview

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Speaker 3: of the estimate that she would have privately seen.

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Speaker 2: Lucy White.

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Speaker 3: Great to have you with us our UK Politics and

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Speaker 3: Economics reporter.

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Speaker 2: We thank you well.

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Speaker 1: We're still waiting for details of how the EU plans

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Speaker 1: to respond to Donald Trump's tariffs on steel and aluminium,

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Speaker 1: after Brussels promised it would hit back. The escalating trade

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Speaker 1: tensions are adding to uncertainty in Europe. From Germans, Germany's

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Speaker 1: federal election, which is taking place in less than two

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Speaker 1: weeks time. Now, our senior editor Alan Crawford joins us

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Speaker 1: for more from Berlin. Alan, you've been reporting from the

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Speaker 1: German port of Hamburg. It's one of the most important

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Speaker 1: trading points in the EU. How worried are people there

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Speaker 1: about the risk of a trade war?

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Speaker 10: Good morning. Well, this mood there is really one offul

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Speaker 10: trepidation that people, companies, businesses, the port itself are all

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Speaker 10: stealing themselves for what is to come.

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Speaker 2: When I was up there last.

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Speaker 10: Week and everybody really was saying that it's virtually impossible

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Speaker 10: to calculate what is the media impact. I mean, this

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Speaker 10: is a port that's been in existence for eight centuries,

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Speaker 10: that they're used to the ups and downs, all sorts

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Speaker 10: of turbulence. But what the agree on is that any

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Speaker 10: kind of impact on global trade is bad for business.

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Speaker 3: And what's the risk to Germany from an escalation of

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Speaker 3: this trade dispute with the US.

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Speaker 2: What are the numbers kind of look like? Allen, good morning.

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Speaker 10: By the way, Hey, good bar and Lizzie. Yeah, I mean,

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Speaker 10: Germany is despite the flood of bad news that's been

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Speaker 10: coming through in terms of the economy, it still is

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Speaker 10: the world's number three economy after the US and China,

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Speaker 10: and it's a manufacturing based economy. They live and die

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Speaker 10: in terms of exports, two thirds of which go through

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Speaker 10: the port of Hamburg. So they're concerned both about Trump's

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Speaker 10: tariffs and of course any retaliation and really this broader

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Speaker 10: idea that the world is becoming more inward looking, protectionism

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Speaker 10: is rising, and all of that can potentially affect global trade.

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Speaker 1: Of course, this is all playing out while Germany's election

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Speaker 1: campaign is coming towards its conclusion, with the election on

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Speaker 1: Sunday of next week. Economic issues have been central to

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Speaker 1: that debate as well. How are these issues playing into

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Speaker 1: the campaign in Germany?

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Speaker 10: Well, Hamburg is somewhat unusual in that it consistently tops

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Speaker 10: the ranks of the highest GDP per capita of Germany's

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Speaker 10: sixteen states, so it's frankly wealthy. At the same time,

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Speaker 10: it's also one of the reasons I went there was

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Speaker 10: that it's Olaf Schultz, the Chancellor's hometown. It's a bastion

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Speaker 10: of support for his Social Democrats party and interestingly, the

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Speaker 10: far right AfD party that we talk about that's running

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Speaker 10: second nationally, it's nowhere in Hamburg, and so it's a

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Speaker 10: bit of an anomaly in that sense. But everybody agrees

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Speaker 10: there that Germany as a whole needs to raise its

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Speaker 10: competitive competitiveness. That's the single biggest issue for all of

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Speaker 10: these businesses going into this election.

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Speaker 2: I mean, for anyone who's not following the.

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Speaker 3: German election blue black, Blue, or hasn't started yet, alan

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Speaker 3: how much of a factor is it in whoever's going

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Speaker 3: to be successful that they can tell a positive story

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Speaker 3: about the German economy, that they can present a realistic

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Speaker 3: way of dealing with Donald Trump when it comes to

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Speaker 3: the tariff war between the US and the EU.

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Speaker 2: That is actually a very good point.

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Speaker 10: It's exceptionally difficult for exactly these reasons that we're talking

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Speaker 10: about that we can see on show in Hamburg, that

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Speaker 10: there's a limited amount that any government in a country

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Speaker 10: like Germany, or indeed any other country in Europe or

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Speaker 10: much of the rest of the world can do when

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Speaker 10: they're faced with a global trade war that's instigated by

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Speaker 10: the world's number one economy. So that there is this

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Speaker 10: sense that Germany, as an export dependent country, is really

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Speaker 10: stuck in the middle between the US and potentially China

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Speaker 10: and that and this is some of the fear that

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Speaker 10: the next German government of whichever hu it is, may

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Speaker 10: not be able to immediately rapidly enough tackle the issues

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Speaker 10: at hand.

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Speaker 1: This is Bloomberg Daybreak Europe, your morning brief on the

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