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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Europe podcast, available every morning

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Speaker 2: on Apple, Spotify or wherever you listen.

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Speaker 1: It's Friday, the tenth of May in London. I'm Stephen Carroll.

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Speaker 3: And I'm Lizzie Burden. Up Today, the UK economy exits

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Speaker 3: recession with the strongest quarter of growth in over two years.

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Speaker 2: The United States is poised to announce major new tariffs

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Speaker 2: targeting China strategic sectors.

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Speaker 3: Plus Benjamin Netanya, who says Israel will continue its war

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Speaker 3: against Hamas despite US warnings.

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

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Speaker 3: The UK has exited recession with the strongest quarter of

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Speaker 3: growth in nearly three years. GDP expanded by zero point

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Speaker 3: six percent in the first quarter, beating all estimates. The Chancellor,

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Speaker 3: Jeremy Hunt claims it's proof the economy is returning to

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Speaker 3: full health for the first time since the pandemic.

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Speaker 4: It's encouraging that the UK economy is growing faster, not

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Speaker 4: just than France, Germany or Italy, but actually faster than

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Speaker 4: the United States. But I think what's more encouraging is

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Speaker 4: the longer term data. Since twenty ten, we have created

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Speaker 4: more jobs in the UK than any other country in Europe.

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Speaker 2: Whether GDP data comes as the Bank of England and

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Speaker 2: markets are now roughly in line about the prospect of

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Speaker 2: a June rate cut. This after months of divergence between

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Speaker 2: investors and policymakers over when borrowing costs will be lowered.

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Speaker 2: The Bank of England held rate steady yesterday. Governor Andrew

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Speaker 2: Bailey said a loosening of monetary policy may come soon.

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Speaker 5: With the progress we've made to make sure that inflation

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Speaker 5: stays around the two percent target, it's likely that we

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Speaker 5: will need to cut bank rate over the coming quarters

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Speaker 5: and make Marjory policy is somewhat less restrictive over the

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Speaker 5: forecast period, possibly more so than currently priced into market rates.

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Speaker 1: Andrew Bailey speaking there.

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Speaker 2: Following his remarks, investor bets and a June rate cut

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Speaker 2: rose to over fifty percent, now at fifty seven percent

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Speaker 2: in terms of data. Two sets of inflation and labor

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Speaker 2: market releases are due in the UK before the next

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Speaker 2: BOE decision on the twentieth of June.

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Speaker 3: Elsewhere, US President Joe Biden will unveil tariffs against China

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Speaker 3: as soon as next week, targeting key sectors including electric vehicles,

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Speaker 3: batteries and solar equipment. Bloomberg has learned that the policies

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Speaker 3: which would mark one of Biden's biggest moves against Chinese trade,

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Speaker 3: are scheduled to be announced next Tuesday. Bimbog's chief North

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Speaker 3: Asia TV correspondent Stephen Engel says it's the latest sign

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Speaker 3: of how Chinese subsidies are causing a global backlash.

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Speaker 6: What we're hearing from sources in this scoop is that

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Speaker 6: these new tariffs would be very targeted at the three

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Speaker 6: key green industries that Hi Jinping has essentially earmarked as

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Speaker 6: priorities for investment, the new Three, as he called it

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Speaker 6: at the National People's Congress in March, and that is

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Speaker 6: electric vehicles, batteries, and.

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Speaker 3: Solar Biden's plans are a contrast to Donald Trump's pledge

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Speaker 3: to leva sixty percent tax on all Chinese imports if

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Speaker 3: he wins the November election. The move comes after a

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Speaker 3: stabilization of ties with China and flurry of diplomatic engagements.

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Speaker 2: Benjaminnettannia, who says that Israel will fight alone even without

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Speaker 2: US help and must continue its offensive against Hamas in Raffa.

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Speaker 2: It comes after President Biden said on Wednesday that he

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Speaker 2: would stop additional shipments of offensive weapons to Israel if

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Speaker 2: it launches a ground invasion of the southern Gaza city

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Speaker 2: Bendamnetta naw Who told the American TV program Dr Phil

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Speaker 2: he has to protect his country.

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Speaker 7: I've said in the Holocaust memorial service that we had

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Speaker 7: the other day. I said in the Holocaust we stood alone,

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Speaker 7: but we were defenseless. And today, if Israel has to

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Speaker 7: stand alone, we'll stand alone.

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Speaker 2: The Israeli prime ministers said Israel would do its utmost

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Speaker 2: to make sure civilians leave RAFA. White House officials insisted

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Speaker 2: the US stands by its ally while urging Netanya Who

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Speaker 2: to refrain from an assault on RAFA. Concerns echoed by

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Speaker 2: the UK.

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Speaker 3: To Spanish banking Now Sabadel is accusing BBVA of breaking

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Speaker 3: Spanish laws with its twelve billion dollar hostile takeover bid

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Speaker 3: for the bank. Tensions are running high between the two

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Speaker 3: lenders after bbva's offer, which rival Sabadel says introduces incomplete

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Speaker 3: information that may affect the market. The Spanish government is

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Speaker 3: also opposed to the merger, saying they have the final

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Speaker 3: word on approving any potential deal. Hostile BID's are a

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Speaker 3: rarity in European banking, and a spokesperson for BBVA had

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Speaker 3: no comment when contacted by Bloomberg.

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Speaker 2: Pershing Square founder Bill Ackman was criticized for his attacks

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Speaker 2: on diversity and inclusion policies in a closed door panel

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Speaker 2: discussion at the Milken Conference in Los Angeles. Ackman has

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Speaker 2: previously labeled DEI initiatives as inherently racist and illegal. About

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Speaker 2: forty people, including some of Wall Street's most senior executives

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Speaker 2: of color, confronted him about these views at the meeting.

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Speaker 2: At least one speaker said as comments reflected a poor

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Speaker 2: understanding of the civil rights movement. In a statement issued afterwards,

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Speaker 2: Ackman said he has written thousands of words about his

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Speaker 2: nuanced views on this important topic and asked people to

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Speaker 2: read them to fully understand his perspective.

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Speaker 3: And finally, ARM shares tumbled on Thursday after a tepid

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Speaker 3: review revenue forecast for the fiscal year raised concerns about

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Speaker 3: a slowdown in the tech sector's AI spending. The UK

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Speaker 3: Chip based, the chip designer whose Upbate forecast sent shares

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Speaker 3: soaring three months ago, said revenue in the year to

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Speaker 3: March twenty twenty five is going to be lower than

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Speaker 3: analysts had forecast. ARM CEO Renee Hass has been speaking

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Speaker 3: to Bloomberg's Caroline Hyde and Ed Ludlow about why he's

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Speaker 3: optimistic about their rate of growth.

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Speaker 8: We're actually forecasting even higher growth this year and north

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Speaker 8: of twenty percent, and we also signaled to the markets

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Speaker 8: yesterday that in twenty five, twenty six, twenty seven, we

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Speaker 8: see that growth continuing. So we have incredible visibility into

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Speaker 8: our business and we're very very confident of this growth

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Speaker 8: rate going forward.

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Speaker 3: That was the ARM CEO Renee Hass, speaking with Bloomberg there.

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Speaker 3: Now in a moment, we're going to dig into that

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Speaker 3: latest UK GDP data and yesterday's Bank of England decision.

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Speaker 3: But first, even a marketing campaign for the Apple iPad

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Speaker 3: pro garnering fifty five million views on Tim Cook's x account.

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Speaker 3: It had a big slab bearing down on musical instruments,

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Speaker 3: books and paint and cameras and video games like piano,

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Speaker 3: all sorts of creative tools, and then they exploded and

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Speaker 3: were crushed and it seems this ad is not going

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Speaker 3: to play on TV. It's been a bit of a

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Speaker 3: disaster for it.

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Speaker 2: For Apple yeah, it has because of the image that

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Speaker 2: it gives of crushing creativity and replacing them with an iPad.

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Speaker 2: Essentially davely our opinion. Colum must have been writing about

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Speaker 2: this tone deaf, he says. The ad is he said,

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Speaker 2: it's hard to believe that nobody on Apple's marketing team

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Speaker 2: saw this coming, and perhaps they were too timid to

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Speaker 2: speak up. But it certainly hasn't gone down very well,

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Speaker 2: and it's sort of a rare misstep from Apple on

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Speaker 2: its marketing campaigns. And I think a lot of perhaps

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Speaker 2: those views are people tuning in to see what was

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Speaker 2: wrong with it.

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Speaker 3: I mean, how much time do you spend playing the

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Speaker 3: piano compared to on your phone.

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Speaker 1: Well, I can't play the piano, so not very much.

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Speaker 3: It's the answer I used to and now I don't.

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Speaker 3: But let's go back to the UK economy. We had

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Speaker 3: the latest GDP numbers this morning, beating expectations both for

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Speaker 3: March and the first quarter recession. Now in the rear

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Speaker 3: view mirror. They come hot on the heels of yesterday's

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Speaker 3: BOE decision which opened the door to a June cut.

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Speaker 3: And we can get analysis now from our chief UK

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Speaker 3: economist Dan Hansen, Dan, I want to start with the

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Speaker 3: GDP numbers. Do they delay a rate cut from the

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Speaker 3: Bank of England.

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Speaker 1: I don't think they.

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Speaker 9: Do, so I still think I still think June's I mean,

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Speaker 9: the market's got sixty percent.

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Speaker 1: I think it might be a.

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Speaker 9: Little bit higher than that in terms of the probability.

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Speaker 9: But I think, as we heard from at the press

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Speaker 9: conference yesterday, it's really about services, inflation, pay growth and

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Speaker 9: headline CPI as well, and I think if those things

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Speaker 9: come in line with the Bank's forecast, I think it

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Speaker 9: will be it will it will cut in June. I mean,

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Speaker 9: I think the thing about this number for me at least,

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Speaker 9: is it says something particularly of this sort of well

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Speaker 9: certainly of this pace of growth is madeained. It says

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Speaker 9: something about how far the bank might be able to

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Speaker 9: cut rates beyond June, and it says about sort of

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Speaker 9: tells us something about potentially the terminal rate, that the

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Speaker 9: economy might might be able to withstand a higher interest

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Speaker 9: rate than sort of the widely perceived sort of view.

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Speaker 9: I think in the market that the neutral rate of

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Speaker 9: interest is somewhere between three and four. It might actually

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Speaker 9: be closest to the top end of that range, and

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Speaker 9: so there's less there's less run to cut rates before

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Speaker 9: you start essentially stimulating the economy and take all the

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Speaker 9: restriction out of the policy stunts.

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Speaker 1: What is the implication of the economy of the neutral

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Speaker 1: RASO is that much higher?

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Speaker 10: Some very good question soon how long have you got Well,

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Speaker 10: I mean, just purely in terms of just sort of

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Speaker 10: thinking about the here and now.

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Speaker 9: I mean, the answer is what I just gave is

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Speaker 9: that the bank doesn't need to cut by won't need

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Speaker 9: to cut by much. And I think what we'll find is,

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Speaker 9: and I think you can look at the US and

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Speaker 9: see something this sort of story potentially evolving where you've

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Speaker 9: got rates at five and a half percent, you've got

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Speaker 9: growth at three percent, you've got basically full employment, and

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Speaker 9: you've got the exactly And so that tells you that

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Speaker 9: the neutral rates probably not two and a half three.

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Speaker 9: It may be significantly higher if you just take that

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Speaker 9: as read. I mean, there are plenty of other reasons

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Speaker 9: why that dynamic is potentially playing out in the US,

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Speaker 9: but just purely through the sort of lens of the

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Speaker 9: neutral rate and thinking about it like that. Of course,

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Speaker 9: the other big implication of a high neutral rate is

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Speaker 9: the fiscal implication of it all as well. You know,

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Speaker 9: the hope, certainly when we're thinking about the UK is

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Speaker 9: the interest rate as interest rates for that will create

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Speaker 9: more fiscal space potentially for a fiscal event in the

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Speaker 9: autumn where more tax cuts can be announced, or for

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Speaker 9: the next government to potentially sort of think about investing

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Speaker 9: more in the economy's future. It's the neutral rates higher,

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Speaker 9: it's obviously going to take their interest payment's going to

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Speaker 9: take a lot more of the fiscal space that the

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Speaker 9: UK as and that obviously has significant implications for all

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Speaker 9: the rest of what goes on the fiscal side, tax

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Speaker 9: and spending decisions. So actually, yes, there are monetary policy implications,

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Speaker 9: but it has significant fiscal implications as well well.

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Speaker 3: Since you brought up the politics down, what about the

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Speaker 3: politics on the Monetary Policy Committee? Dave Ramsden dissenting, making

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Speaker 3: him the first of the internals to go against the

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Speaker 3: pack and go for a cut rather than a hole.

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Speaker 3: Do you think he'll be in trouble for doing that

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Speaker 3: or do you think he was kind of a signal

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Speaker 3: to the market. Was he the sacrificial lamb of the committee?

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Speaker 11: There?

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Speaker 9: Zack Official Dove, I think, I mean I you know,

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Speaker 9: I'm not going to speak for Dave's decision. I mean,

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Speaker 9: I think it there were merits in both sides of

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Speaker 9: the argument this time. You know, historically the vote split

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Speaker 9: has been a signal. One observation I would make is

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Speaker 9: that Dave has led the pack in this recent hiking

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Speaker 9: cycle that we've had before and before as well, but

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Speaker 9: notably sort of November twenty twenty one he went for

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Speaker 9: a hike, then they hiked in December February twenty two

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Speaker 9: he went for fifty bases points, so and they ended

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Speaker 9: up going for fifty basis points later that year. So

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Speaker 9: you know, there, you know, there's arguably a signal there.

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Speaker 9: But I think I don't think he's going to be

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Speaker 9: in trouble. You know, we're you have to choose whether

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Speaker 9: you want groupthink or whether you want, you know, a

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Speaker 9: diversity of views, and I think we probably want the

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Speaker 9: second one. And I think it's good, particularly good that

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Speaker 9: it's it's an internal member, because that's that's sort of

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Speaker 9: the preconceived idea, isn't it that they all all the

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Speaker 9: internals vote together and the external externals are meant to

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Speaker 9: put the cat amongst the pigeons. But I think it's

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Speaker 9: it's good that we've we've seen that sort of that

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Speaker 9: difference of views, and it is clear in the minutes

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Speaker 9: they all have very different assessments of what's going on

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Speaker 9: on the inflation front.

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Speaker 2: Just coming back to today's GDP figures stronger than expectors

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Speaker 2: starts of the year, does this do anything to the

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Speaker 2: kind of longer term outlook for where growth is for

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Speaker 2: the UK?

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Speaker 9: So I think one quarter to the next, it's very

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Speaker 9: hard to sort of change your view about that. I mean,

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Speaker 9: I think arview for a very long time is that

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Speaker 9: trend growth sort of around the point three point four mark,

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Speaker 9: So that's how fast it can grow on a quarterly

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Speaker 9: basis without stoking in inflationary pressure. So it's obviously point

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Speaker 9: six is above that. Do I think this sort of

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Speaker 9: pace could be maintained sort of indefinitely into the future

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Speaker 9: and it not calls a headache for the Bank of England.

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Speaker 1: No, I think it.

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Speaker 9: Would be end up being inflationary. So I think, you know,

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Speaker 9: for us it's still this is sort of an above

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Speaker 9: trend growth reading. I mean, interestingly, it jars quite considerably

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Speaker 9: our view with for example, the obr's view, which are

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Speaker 9: they're a lot more optimistic on the outlook, particularly for

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Speaker 9: productivity growth. The Bank of England are much closer to

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Speaker 9: our view. But I don't think to answer your question directly,

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Speaker 9: I don't think it changes the sort of longer term

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Speaker 9: picture for the UK.

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Speaker 3: Dan Ans and our chief UK economists, we thank you

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Speaker 3: for that analysis of the GDP number this morning on

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Speaker 3: the Bore decision yesterday.

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Speaker 1: Now it in exclusive Bloomberg story.

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Speaker 2: President Joe Biden will unveil tariffs against China as soon

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Speaker 2: as next week, targeting key sectors including electric vehicles, batteries

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Speaker 2: and solar equipment. Joining us to discuss our greater at China,

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Speaker 2: Executive editor John Liu.

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Speaker 1: John, great to have you with us. What exactly are

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Speaker 1: we expecting the US to announce.

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Speaker 12: We are expecting President Biden next week to announce that

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Speaker 12: he is going to be imposing tariffs on a number

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Speaker 12: of strategic industries. As you said, electric vehicles, batteries, solar

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Speaker 12: These are all industries where the United States has expressed

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Speaker 12: concerns about overcapacity in China. The China would be trying

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Speaker 12: to export its way out of that overcapacity problem, and

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Speaker 12: that would intel extremely low priced products going into the

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Speaker 12: United States and other markets. Such a step, I think

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Speaker 12: is important to note, would be unlike what presidential can

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Speaker 12: that Donald Trump is proposing, which is just a broad

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Speaker 12: tariff on anything made in China coming into the United States.

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Speaker 3: We had a guest on earlier saying, you know, these

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Speaker 3: aren't the first tariffs, they're not the last tariffs. It's

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Speaker 3: kind of what we expected, a tit for tat trade battle.

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Speaker 3: I wonder how significant you think they are, but how

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Speaker 3: significant especially you think they are in terms of China's

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Speaker 3: response and what China is going to do about it.

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Speaker 12: I think this is going to put a lot of

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Speaker 12: pressure on the relationship. Since the meeting in San Francisco

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Speaker 12: late last year between Presidents Biden and She, the bilateral

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Speaker 12: relationship is stabilized.

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Speaker 1: At the very least. Both sides have.

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Speaker 12: Been trying to find a way to improve things. But

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Speaker 12: I think the general condition of the relationship is one

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Speaker 12: of rivalry now and that is going to continue to

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Speaker 12: surface this time in the sense of tariffs. We've also

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Speaker 12: seen it when it comes to the South China Sea,

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Speaker 12: We've seen it when it comes to Taiwan, chips, lots

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Speaker 12: of different sectors. I think we will see that continue

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Speaker 12: to manifest, and it'll be up to the two governments

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Speaker 12: to try to find a way to compete without that

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Speaker 12: competition evolving into some sort of conflict.

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Speaker 1: John, should we expect what should we expect? Rather? In

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Speaker 1: terms of a response from China to this, I.

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Speaker 12: Think the Chinese, I think there will have to be

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Speaker 12: some sort of response from Beijing. They will feel they

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Speaker 12: need to show that domestic audience here in China that

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Speaker 12: they are doing something to protect the interests of Chinese companies,

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Speaker 12: Chinese citizens, the country at large. I think they will

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Speaker 12: be trying to fine tune that response so it is reciprocal,

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Speaker 12: it is of the same scale. So, for example, the

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Speaker 12: tariffs that President Biden has also called for on steel

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Speaker 12: and aluminum exports from China to the US, that probably

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Speaker 12: is not going to affect China very much, and so

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Speaker 12: if the Chinese were going to respond to that, they

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Speaker 12: probably would do something that is likely not going to

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Speaker 12: have as big of an impact on the US or

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Speaker 12: US company.

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Speaker 2: Well, this is Bloomberg Daybreak Europe, your morning brief on

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