WEBVTT - Bank of England Governor Andrew Bailey Talks Post-Rate Decision

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. Governor, thank you so

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<v Speaker 1>much for speaking to Bloomberg. So what exactly is the

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<v Speaker 1>difference between an active hold and a wait and seahold.

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<v Speaker 2>Well, I characterize a wait and seahole. Look, the world

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<v Speaker 2>is very uncertain, unpredictable. I mean not only today. You know,

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<v Speaker 2>if you follow the ol price today, we've had a

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<v Speaker 2>swing in the ore price. I think I'm being arranged

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<v Speaker 2>over ten dollars a barrel today. So the world is

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<v Speaker 2>very unpredictable. So the way I characterize a wait and

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<v Speaker 2>seahold is sitting sort of almost in sort of suspended

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<v Speaker 2>sort of, you know, saying, well, we don't know what's

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<v Speaker 2>going on. You know, let's just sit tight. And we

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<v Speaker 2>haven't done that. We thought very hard about this, so

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<v Speaker 2>it's a very deliberate hold the whole is the right

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<v Speaker 2>thing for the circumstances today, bearing in mind, you know,

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<v Speaker 2>a very wide range of possible outcomes.

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<v Speaker 1>So it means that you're you're holding, but you're kind

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<v Speaker 1>of ready to go. So how likely is it?

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<v Speaker 2>It doesn't mean, it doesn't mean we're sort of poised

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<v Speaker 2>over the sort of the verbial button as it were. No,

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<v Speaker 2>what I mean, is it's it's a fought through hold

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<v Speaker 2>in a sense. Look, there's a range of outcomes. We

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<v Speaker 2>have to sort of not only consider the uncertainty around

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<v Speaker 2>the cause of the shock, if you like, what's going

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<v Speaker 2>on in the Gulf energy prices, but also how the

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<v Speaker 2>uncertainty around how it passes through into the UK economy,

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<v Speaker 2>state of demand in the economy, state of labor market,

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<v Speaker 2>all these things, you get a range of outcomes. We

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<v Speaker 2>will not know the second round effects for a while,

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<v Speaker 2>but we can't wait for the second round effects to

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<v Speaker 2>be staring us in the face because it'll be too

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<v Speaker 2>late by then. But it's a considered policy in that sense.

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<v Speaker 2>It's not a sort of well, this is all too difficult,

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<v Speaker 2>let's just hope for the best.

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<v Speaker 1>So let's say that oil stays at one hundred and

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<v Speaker 1>thirty dollars per veril for a bit of time. Is

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<v Speaker 1>that a game changer?

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<v Speaker 2>Well, the scenario that we have, the worst scenario that

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<v Speaker 2>we've said today, actually has sort of features to it.

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<v Speaker 2>I would say, you're right, it has all going up

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<v Speaker 2>to around about that level. But actually even even more

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<v Speaker 2>powerful is it stays above one hundred dollars a barrel

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<v Speaker 2>until the end of next year, So this is a

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<v Speaker 2>very prolonged shock. That scenario also has stronger pass through

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<v Speaker 2>into general prices in it in the economy, because that's

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<v Speaker 2>another obviously important part of the story. So that's the

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<v Speaker 2>scenario in which you generate, you know, a very difficult situation.

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<v Speaker 1>I mean, I guess the concern is that oil prices

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<v Speaker 1>can fluctuate a lot. Second round checks take a lot

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<v Speaker 1>longer to see. So what are you hoping data wise

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<v Speaker 1>to be able to pinpoint?

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<v Speaker 2>Well before the summer we start, I would say, in

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<v Speaker 2>a situation before any of this happened, when I was

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<v Speaker 2>going around the country, films were saying to me pretty

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<v Speaker 2>consistently they were finding it hard to pass costs through

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<v Speaker 2>into final prices. We've also seen the labor market softening.

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<v Speaker 2>We've seen wage settlements softening gradually over time. That was

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<v Speaker 2>core to our story before any of this came up. Really,

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<v Speaker 2>but that's the context then, so you know it's a

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<v Speaker 2>softer backdrop. So again we have to say, well, okay,

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<v Speaker 2>there's now been a very difficult obviously shot too. Energy

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<v Speaker 2>prices gets fed through, but how much is it going

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<v Speaker 2>to get Fedterugh, that's the question. And what's going to

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<v Speaker 2>happen to consumer demand, which is say, is looking quite soft,

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<v Speaker 2>and that sounds.

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<v Speaker 1>Our consumers and households thinking of twenty twenty two and

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<v Speaker 1>the sharp which is why there's been an inflation expectation

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<v Speaker 1>pick up, maybe quicker than we would have Foune Well.

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<v Speaker 2>Inflation expectations have picked up now because they do tend

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<v Speaker 2>to follow current the shorter end of one year ahead.

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<v Speaker 2>Inflation expectations tend to sort of follow what inflation is today.

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<v Speaker 2>But we're also obviously sensitive to the fact that people's

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<v Speaker 2>memories are important here. They remember the fact that we

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<v Speaker 2>had high inflation here four years ago, so that's also

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<v Speaker 2>has a part to play in this, and we do

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<v Speaker 2>take it into consideration obviously.

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<v Speaker 1>I mean, overall, the markets largely see today as fish.

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<v Speaker 1>Yet your own chief economist was pushing quite hard for

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<v Speaker 1>a hike. So is it odd having a dissenter coming

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<v Speaker 1>from the boy's own office.

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<v Speaker 2>Well, I wouldn't particularly say stuffish, but obviously that judgment

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<v Speaker 2>has to be relative to what you thought, what people

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<v Speaker 2>thought we were going to do. So I respect that

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<v Speaker 2>that that point, and we have been somewhat pushing against

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<v Speaker 2>you know, I was pushing against the curve as you know,

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<v Speaker 2>you know, five or six weeks ago probably now. Look,

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<v Speaker 2>I think Hugh Pill's position is perfectly understandable. You know,

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<v Speaker 2>I didn't vote with him, I didn't agree with him

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<v Speaker 2>on the end decision, but I understand the point he's making.

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<v Speaker 2>I would also say, Hugh write this in his paragraph

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<v Speaker 2>that you use the word modest and I think he

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<v Speaker 2>used the word modestory deliberately. I mean, he'll speak for himself,

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<v Speaker 2>but I think that word is deliberately in there. So

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<v Speaker 2>the differences between us are not that big.

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<v Speaker 1>Would it take What would it take for you to

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<v Speaker 1>actually to vote for a hike next time?

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<v Speaker 2>Well, I think we will. We sit down and go

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<v Speaker 2>through all the evidence, and I think what it will

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<v Speaker 2>take is and we laid out sort of some of

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<v Speaker 2>the things we'd be looking at is quantitive and quality.

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<v Speaker 2>I mean, I think what we get on the quality

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<v Speaker 2>of side is going to be important, because, yeah, we'll

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<v Speaker 2>be talking to a lot of business as saying, how

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<v Speaker 2>are you approaching passing these cost increases through? What are

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<v Speaker 2>you seeing in terms of demand for your whatever you

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<v Speaker 2>produce or provide. We're going to it's going to be

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<v Speaker 2>some time before we get a real read on wage settlements,

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<v Speaker 2>because there's quite a seasonality to wage settlements in this country,

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<v Speaker 2>and we've passed through peak season, which is earlier in

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<v Speaker 2>the spring. So it's going to be a while before

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<v Speaker 2>we get a really probably pretty any big read on

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<v Speaker 2>wage settlements. But we will be looking very carefully at

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<v Speaker 2>what people are planning for, you know, those settlements that

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<v Speaker 2>are coming through. That will be important as well.

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<v Speaker 1>How big is the risk of a technical recession at

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<v Speaker 1>this point, Well.

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<v Speaker 2>Most of the scenarios we have actually and against most

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<v Speaker 2>of the interestrate paths, actually suggest that this is a

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<v Speaker 2>story of slower growth in the more extreme sort of

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<v Speaker 2>difficult scenario with some policy. You can have a variety

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<v Speaker 2>of policy responses. There are some quarters of negative growth.

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<v Speaker 2>But this is actually, interestingly not as we see it

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<v Speaker 2>today at least a story of dominating it's going to

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<v Speaker 2>be a recession. That's not the dominating story at all government.

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<v Speaker 1>I mean, so far, you're happy with the market reaction,

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<v Speaker 1>and also, I mean next week is a big deal

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<v Speaker 1>in terms of you know, the elections in parts of

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<v Speaker 1>the UK. Could that be a market event.

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<v Speaker 2>I think the market's reaction to it so far today

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<v Speaker 2>is so sensible on the UK side. I don't come

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<v Speaker 2>on Tony ekod politics obviously, but what I would say

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<v Speaker 2>is this the things that I think what we've seen

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<v Speaker 2>in the interest right curve has been dominated by the golf.

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<v Speaker 2>The things I look for in terms of when I

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<v Speaker 2>started to sort of break down what's influencing this, it

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<v Speaker 2>has the exchange rate move No, not much at all.

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<v Speaker 2>Actually have we seen much movement in short run sterling

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<v Speaker 2>swap spreads? Not much at all. In fact, there's a

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<v Speaker 2>bit tighter than it was before the budget last autumn,

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<v Speaker 2>So that suggests it's really actually it's a golf story,

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<v Speaker 2>I think government.

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<v Speaker 1>I mean the final question is NISR warned this week

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<v Speaker 1>that rates could go one hundred and fifty basis points

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<v Speaker 1>higher if the Middle East crisis worsened. I mean, can

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<v Speaker 1>you see any scenario where that would happen?

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<v Speaker 2>Well, look, there are really bad scenarios. And if we

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<v Speaker 2>get if we get cut off of energy supplies going

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<v Speaker 2>on for a very long period of time, you know,

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<v Speaker 2>plant things can happen, but it's not it's not in

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<v Speaker 2>our it's not in our central decision today at all.

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<v Speaker 1>But this is what a ten chance. So I don't avoid.

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<v Speaker 2>Because I think that the world is so unpredictable at

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<v Speaker 2>the moment. So we've seen it today, let's alone. You know,

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<v Speaker 2>over longer periods of time, the world is so unpredictable

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<v Speaker 2>that I think putting sort of precise, you know, percentage

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<v Speaker 2>probabilities on things is well put it, put it politely

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<v Speaker 2>hazardous business.

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<v Speaker 1>It's too risky.

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<v Speaker 2>Governor.

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<v Speaker 1>Thank you so much.

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<v Speaker 2>As ever, you're very welcome.