WEBVTT - Bloomberg Daybreak Weekend: Big Tech, BOE, 2024 Race 0:00:03.120 --> 0:00:05.760 This is Bloomberg day Break Weekend, our global look at 0:00:05.800 --> 0:00:07.960 the top stories in the coming week from our day 0:00:07.960 --> 0:00:10.119 Break anchors all around the world and straight ahead on 0:00:10.160 --> 0:00:12.960 the program. Tech earnings continued this week, and we'll get 0:00:12.960 --> 0:00:15.480 a preview. I'm Tom Busby in New York. 0:00:15.600 --> 0:00:17.599 I'm Stephen carl and London, who are looking ahead to 0:00:17.600 --> 0:00:19.840 the options facing the Bank of England as an inflation 0:00:19.920 --> 0:00:22.640 in the UK remains the highest in the G seven. 0:00:22.960 --> 0:00:25.960 I'm Deck Prisner. How close is the aviation industry in 0:00:26.040 --> 0:00:28.400 the APAC to pre pandemic levels. 0:00:28.640 --> 0:00:30.960 I'm Gaylei Lynes in Washington, where we're looking ahead to 0:00:31.000 --> 0:00:33.680 Florida Governor Ronda Santis getting set to make a big 0:00:33.840 --> 0:00:34.760 economic speech. 0:00:35.440 --> 0:00:38.720 That's all straight ahead on Bloomberg day Break Weekend on 0:00:38.880 --> 0:00:42.000 Bloomberg Eleve them three oh New York Bloomberg ninety nine 0:00:42.000 --> 0:00:45.400 to one, Washington, DC, Bloomberg one O six one, Boston, 0:00:45.440 --> 0:00:50.240 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:50.400 --> 0:00:53.640 XM one nineteen and around the world on Bloomberg Radio 0:00:53.720 --> 0:00:56.320 dot com and via the Bloomberg Business app. 0:01:00.160 --> 0:01:00.279 You. 0:01:00.320 --> 0:01:02.760 I'm Tom Busby, and we begin today's program with two 0:01:02.760 --> 0:01:06.120 of the biggest names in tech, Apple and Amazon, posting 0:01:06.120 --> 0:01:09.600 their latest earnings this coming week and joining us to 0:01:09.600 --> 0:01:12.679 talk about what to expect. Ed Ludlow, co host of 0:01:12.760 --> 0:01:15.800 Bloomberg Technology, ed, thank you for being here. 0:01:15.959 --> 0:01:17.480 Thank you for having me. Happy weekend. 0:01:17.880 --> 0:01:21.200 Yes it is well. Now, before we jump into Apple 0:01:21.200 --> 0:01:24.880 and Amazon, let's talk about takeaways from the other megacap 0:01:24.959 --> 0:01:27.440 tech names that have already posted earnings for last quarter. 0:01:27.720 --> 0:01:30.679 And there's a lot to digest here. So why don't 0:01:30.720 --> 0:01:33.160 I let you talk about and we can go one 0:01:33.200 --> 0:01:35.800 by one, starting with maybe meta platforms. 0:01:35.920 --> 0:01:38.000 Yeah, I think there is a commonality between all of 0:01:38.040 --> 0:01:41.320 them that we've all been so hyped up over artificial 0:01:41.400 --> 0:01:46.119 intelligence AI, and we go into earnings hoping that we 0:01:46.200 --> 0:01:48.840 hear some big piece of breaking news about what the 0:01:49.080 --> 0:01:52.400 big tech names doing in AI. But interestingly, the real 0:01:52.480 --> 0:01:55.680 theme of this earning season had been that the core 0:01:55.800 --> 0:01:58.560 legacy businesses for each of these big tech names have 0:01:58.680 --> 0:02:04.080 done really well, prizingly well, and that outperformance against expectations 0:02:04.120 --> 0:02:08.360 has seen the shares rise after earnings print indicate of 0:02:08.400 --> 0:02:11.320 meta alphabet Microsoft, And even though you know there's a 0:02:11.320 --> 0:02:13.800 lot of talk on the call about AI, you know 0:02:13.880 --> 0:02:16.000 that's what investors have been looking at. So Meta's a 0:02:16.040 --> 0:02:19.440 really interesting one. It's been an interesting quarter because Meta 0:02:19.480 --> 0:02:23.760 also launched Threads right, and they stopped telling us how 0:02:23.840 --> 0:02:26.320 that was going after it reached one hundred million users. 0:02:26.960 --> 0:02:30.200 But again the messaging from Mark Zuckerberg the CEO, and 0:02:30.280 --> 0:02:34.240 Susan Lee the CFO, is we're we're playing it slow, 0:02:34.280 --> 0:02:37.160 we're playing it safe with Threads. But Zuckerberg did say 0:02:37.160 --> 0:02:39.840 that if cloud providers, for example, want access to their 0:02:40.280 --> 0:02:43.400 generative AI technology and they're going to make money off it, 0:02:43.400 --> 0:02:45.560 it's only fair the Meta makes money off it too, 0:02:45.600 --> 0:02:47.079 So that was a really interesting U turn. 0:02:47.240 --> 0:02:49.640 Now, speaking of cloud, Microsoft had a bit of a 0:02:49.680 --> 0:02:52.680 surprise in its earnings last week about yeah, a bit 0:02:52.720 --> 0:02:55.160 of a slump and growth in its cloud computing unit, 0:02:55.200 --> 0:02:56.600 which is a big money maker for them. 0:02:57.200 --> 0:02:59.600 Two ways of looking at it. It was a milestone 0:02:59.639 --> 0:03:03.360 because Azure, which is the cloud unit, hit a milestone 0:03:03.360 --> 0:03:07.160 where for the first time it represented more than fifty 0:03:07.160 --> 0:03:11.000 percent of the overall share of cloud revenue. Like they 0:03:11.000 --> 0:03:12.799 make one hundred and ten billion dollars a year in 0:03:12.840 --> 0:03:17.400 collaborated revenues. Sales growth is slipping, but you know it's 0:03:17.440 --> 0:03:20.560 still when you look at the azual unit becoming increasingly 0:03:20.600 --> 0:03:23.239 important to them. And there's an interesting parallel which we 0:03:23.240 --> 0:03:25.240 can talk about with Amazon, which is going to report 0:03:25.360 --> 0:03:27.640 next week. Because we all know Amazon has an e 0:03:27.639 --> 0:03:31.760 commerce platform, right Amazon dot Com, Amazon Prime Video, but 0:03:31.840 --> 0:03:34.200 the cash cow for them is cloud. That's why we 0:03:34.240 --> 0:03:37.040 look so closely at how all of these guys perform, 0:03:37.280 --> 0:03:39.720 because it's a competitive market between the three of them. 0:03:40.280 --> 0:03:41.480 You know, there is some life there. 0:03:41.840 --> 0:03:44.920 And another encouraging sign we got from Intel, and that 0:03:45.040 --> 0:03:48.600 is about PC sales. They're saying things are looking up again. 0:03:49.200 --> 0:03:49.480 Yeah. 0:03:49.640 --> 0:03:52.680 Intel's a really interesting story because every earning season and 0:03:52.800 --> 0:03:56.160 executive will say we think things will get better. You're 0:03:56.160 --> 0:03:57.680 going to have to take our word for it, but 0:03:57.720 --> 0:04:00.760 they'll get better at some point. And the messaging from 0:04:00.840 --> 0:04:03.520 Intel in the last couple of quarters is that the 0:04:03.640 --> 0:04:07.760 demand will recover in the second half of twenty twenty three. Well, 0:04:07.800 --> 0:04:10.520 what Intel did this week is demonstrate that that is 0:04:10.560 --> 0:04:13.240 actually true. We got some evidence. So they had a 0:04:13.280 --> 0:04:16.520 surprise profit in the quarter just gone, and in the 0:04:16.560 --> 0:04:20.440 current quarter they forecast sales of thirteen point eight billion dollars, 0:04:20.640 --> 0:04:22.320 which was ahead of what the street thinks they were 0:04:22.320 --> 0:04:24.800 going to make thirteen point three billion dollars, and it 0:04:24.839 --> 0:04:27.520 all comes down to PC. The story is that there 0:04:27.600 --> 0:04:31.160 was just a surplus of chips that go into personal computers. 0:04:31.560 --> 0:04:34.320 That meant that people that make personal computers had an 0:04:34.360 --> 0:04:37.120 inventory they had to work through. They had a surplus 0:04:37.120 --> 0:04:40.039 of chips. The messaging from Intel is that they've worked 0:04:40.080 --> 0:04:43.880 through that inventory and they're now ordering again for the future. 0:04:44.600 --> 0:04:47.719 Very encouraging. All right, now, let's look ahead what's coming 0:04:47.800 --> 0:04:50.280 up this week, and let's start with what you see 0:04:50.560 --> 0:04:51.440 Apple reporting. 0:04:52.040 --> 0:04:55.160 Yeah, so the quarter that we've already reported this year 0:04:55.240 --> 0:04:58.560 for Apple, the calendar second quarter, a lot of evidence 0:04:58.600 --> 0:05:03.000 that iPhone shipped me to rebounding. Everyone is so stoked 0:05:03.200 --> 0:05:07.560 about the vision pro everything. One's talking about the arvii headself. 0:05:07.560 --> 0:05:10.400 But the thing is, it's just like AI. It's such 0:05:10.440 --> 0:05:13.919 a distant technology. It's so distant from being a meaningful 0:05:13.960 --> 0:05:17.440 revenue contributor that we just look at the iPhone and 0:05:17.480 --> 0:05:20.640 the latest generations of hardware that they're actually shipping. That 0:05:20.839 --> 0:05:23.280 is going to be the story for Apple. It always is, 0:05:23.839 --> 0:05:27.200 and it's important because the more devices that they sell 0:05:27.200 --> 0:05:30.279 around the world, and the more surprised to the upside 0:05:30.320 --> 0:05:33.400 that there is for things like Mac. In markets like China, 0:05:33.440 --> 0:05:37.840 it also usually translates to an improvement in their services revenue. 0:05:38.000 --> 0:05:40.240 What Apple wants to do is build an ecosystem. They 0:05:40.279 --> 0:05:43.479 want people to have multiple types of their devices in 0:05:43.520 --> 0:05:46.839 their hand or in their home and then be lured 0:05:46.880 --> 0:05:49.840 in to spend more on the software and services side. 0:05:49.960 --> 0:05:52.200 And so that's why we pay such close attention to 0:05:52.880 --> 0:05:54.040 Apple and iPhone. 0:05:54.200 --> 0:05:56.960 And let's talk about that thirty five hundred dollars price 0:05:57.040 --> 0:05:58.560 tag on that vision one. 0:05:59.080 --> 0:06:03.360 Thirty five hundred dollars is very expensive. By comparison, the 0:06:03.400 --> 0:06:07.599 premium meta Quest headset is about one thousand dollars and 0:06:07.640 --> 0:06:11.479 its latest generation is about five hundred dollars. So thirty 0:06:11.480 --> 0:06:16.240 five hundred dollars is absolute premium. Now, Bloomberger reported that 0:06:16.320 --> 0:06:19.359 in its first year, applew had hoped to ship around 0:06:19.440 --> 0:06:22.320 nine hundred thousand units. But if you do the math, 0:06:22.400 --> 0:06:25.040 this is what I'm talking about. Nine hundred thousand units 0:06:25.040 --> 0:06:29.359 at thirty five hundred dollars still does not translate to 0:06:29.680 --> 0:06:32.560 three point five billion dollars of sales. That's nothing in 0:06:32.600 --> 0:06:34.760 the scheme of what they do on iPhone and Mac. 0:06:34.960 --> 0:06:38.880 Then The Financial Times reported that they're actually cutting expectations 0:06:38.920 --> 0:06:41.600 and telling suppliers, you know what, we're going to build 0:06:41.960 --> 0:06:44.479 nearer to half of those units. So they've kind of 0:06:44.520 --> 0:06:47.200 scaled back what they hope to do. It's going to 0:06:47.240 --> 0:06:50.440 be a really long time until this is mainstream. But 0:06:50.520 --> 0:06:52.880 the price point also makes you realize that the vision 0:06:52.960 --> 0:06:56.680 Pro it's four developers. It is four people who are 0:06:56.720 --> 0:07:01.240 early adopters at the cutting edge. Bigger question earnings, do 0:07:01.320 --> 0:07:04.320 we get a carrot dangle that has some information about 0:07:04.480 --> 0:07:07.799 future generations of the vision Pro at a lower price point, 0:07:07.839 --> 0:07:11.720 a more mass market product. Apple is usually self restrained. 0:07:11.880 --> 0:07:13.880 They usually don't do that at earnings, but you can 0:07:13.920 --> 0:07:14.880 always be surprised. 0:07:15.160 --> 0:07:15.880 Yeah they are. 0:07:15.920 --> 0:07:19.480 That just one more thing so you never know. Let's 0:07:19.480 --> 0:07:22.720 switch now to Amazon dot Com and you know, we 0:07:22.800 --> 0:07:27.160 talked very much about the cloud computing, their Amazon Web services. 0:07:27.200 --> 0:07:29.440 What that means, what are you looking for? 0:07:29.600 --> 0:07:33.880 And that report it's really interesting. Amazon is still unraveling 0:07:34.000 --> 0:07:38.280 its COVID era investments where they just threw billions of 0:07:38.320 --> 0:07:41.880 dollars at fulfillment, getting packages to you as quickly as 0:07:41.920 --> 0:07:44.000 you could because during the pandemic we were all at home. 0:07:44.640 --> 0:07:46.680 It drove a lot of business for them, but they 0:07:46.680 --> 0:07:49.120 were left with head count and infrastructure that they just 0:07:49.160 --> 0:07:54.680 don't need. Andy Jasse replaced Jeff Bezos's CEO and discipline 0:07:54.720 --> 0:07:57.440 and kind of unraveling that investment in the panemic era 0:07:57.480 --> 0:08:01.520 has been the story. AWS revenue rows around sixteen percent, 0:08:01.600 --> 0:08:03.760 twenty one billion dollars of sales in the court are 0:08:03.840 --> 0:08:07.840 just gone, so those stories continue. We know Amazon as 0:08:07.880 --> 0:08:10.520 consumers is Amazon dot Com where we buy things and 0:08:10.520 --> 0:08:13.240 they're delivered to our doorstep, but the cash cow is 0:08:13.280 --> 0:08:16.880 its cloud business. Now throw artificial intelligence into the mix, 0:08:16.960 --> 0:08:20.200 we might get some early signs about their strategy, which 0:08:20.200 --> 0:08:23.720 has been less about a consumer facing generative AI tool 0:08:23.880 --> 0:08:28.360 like chat GPT and more about providing the infrastructure, cloud 0:08:28.360 --> 0:08:32.280 based infrastructure for companies to work on their own AI tools. 0:08:32.679 --> 0:08:35.240 And once we have a sense that they're going to 0:08:35.240 --> 0:08:37.000 make some money on that in the timeline for that, 0:08:37.559 --> 0:08:40.839 you add this in as another revenue stream alongside AWS. 0:08:41.280 --> 0:08:44.040 Advertising has also been a surprise because it's a higher 0:08:44.040 --> 0:08:46.520 margin revenue that they make hand in hand with their 0:08:46.559 --> 0:08:49.720 e commerce platform. So a lot to focus on there. 0:08:50.559 --> 0:08:52.760 Now, ed I want to talk about the impact of 0:08:52.800 --> 0:08:56.480 a couple of strikes in Hollywood on not big revenue 0:08:57.440 --> 0:09:01.280 generators for both companies Apple and Amazon, but they're streaming services. 0:09:02.400 --> 0:09:06.040 What's the thinking on how this is impacting Apple TV 0:09:06.160 --> 0:09:07.640 Plus and Amazon Prime. 0:09:08.120 --> 0:09:12.160 There is two competing forces happening in the world of 0:09:12.200 --> 0:09:16.600 content and streaming, and it applies pretty uniformly to all 0:09:16.640 --> 0:09:19.880 of the names that are involved. The writers and actors 0:09:19.920 --> 0:09:24.360 strike gives everybody a lot of concern that the content 0:09:24.480 --> 0:09:27.680 timeline and content slate's going to be impacted. Simply put, 0:09:27.720 --> 0:09:30.520 if the actors and writers are on strike, new shows 0:09:30.559 --> 0:09:32.720 and films are not being written, and they're certainly not 0:09:32.760 --> 0:09:35.679 being produced, which means there's a delay in putting them 0:09:35.679 --> 0:09:39.160 out and in some cases projects get canceled altogether. The 0:09:39.240 --> 0:09:42.360 competing force is that, if you're taking the case of Amazon, 0:09:43.120 --> 0:09:47.199 Andy Jasse is looking very very closely about how much 0:09:47.400 --> 0:09:52.000 money the Prime video unit is spending on producing content, 0:09:52.640 --> 0:09:55.640 because it is not a money maker for them. He 0:09:55.720 --> 0:09:58.440 wants to rein in that spending. So you can understand 0:09:58.480 --> 0:10:01.360 right why these are competing forces. We're concerned that not 0:10:01.480 --> 0:10:04.440 enough content's being made, and yet at the same time 0:10:04.559 --> 0:10:07.440 executives are saying, we've really got to scale back what 0:10:07.440 --> 0:10:11.360 we're spending because otherwise we're not going to reach profitability, 0:10:11.360 --> 0:10:14.640 and the long term profitability of streaming platforms is certainly 0:10:14.720 --> 0:10:17.360 a big question. Let's be honest, guys, Like no one 0:10:17.440 --> 0:10:21.840 wants their favorite show to be canceled or indeed like 0:10:22.320 --> 0:10:24.320 wait a whole year and a half for the next 0:10:24.360 --> 0:10:26.600 season to come out. But that is the prospect we face. 0:10:27.440 --> 0:10:30.200 So that's basically the equation the industry's facing. 0:10:30.440 --> 0:10:32.520 Well, a lot to look forward to. Ed, thank you 0:10:32.559 --> 0:10:36.200 so much. That's Bloomberg Technology, host ed Ludlow. Watch the 0:10:36.200 --> 0:10:39.560 show weekdays at twelve pm Wall Street Time, or download 0:10:39.760 --> 0:10:43.720 the b Tech podcast wherever you get your podcasts. Coming 0:10:43.760 --> 0:10:45.960 up on Bloomberg day Break Weekend, we're looking ahead to 0:10:46.000 --> 0:10:49.240 the options facing the Bank of England. I'm Tom Busby 0:10:49.360 --> 0:11:03.760 and this is Bloomberg. This is Bloomberg Daybreak Weekend, our 0:11:03.760 --> 0:11:06.120 global look ahead at the top stories for investors in 0:11:06.160 --> 0:11:08.760 the coming week. I'm Tom Busby in New York. Now 0:11:08.840 --> 0:11:11.080 up later in our program we take a look at 0:11:11.120 --> 0:11:14.240 the aviation sector in Asia. But first, after the reft 0:11:14.240 --> 0:11:17.640 of Central Bank decisions last week, attention now shifts to 0:11:17.720 --> 0:11:20.000 London in the coming days, where the Bank of England 0:11:20.040 --> 0:11:23.960 will announce its latest rate move. Unlike their colleagues in 0:11:24.120 --> 0:11:27.760 Washington or Frankfurt, policymakers in the UK are some way 0:11:27.800 --> 0:11:30.200 off from the end of their hiking cycle. For more, 0:11:30.280 --> 0:11:32.720 let's head to London and bring in Bloomberg Daybreak europe 0:11:32.760 --> 0:11:34.480 banker Stephen Carroll. 0:11:34.480 --> 0:11:36.360 Tom The UK has been an outlier in the G 0:11:36.480 --> 0:11:39.720 seven for its inflation path, which saw the pasive price 0:11:39.840 --> 0:11:43.040 rises remaining higher and stickier in recent months, which had 0:11:43.080 --> 0:11:45.240 the Bank of England to hike by fifty basis points 0:11:45.240 --> 0:11:47.920 the last time around. The most recent inflation print did 0:11:47.920 --> 0:11:50.600 finally show a slowdown, but the headline figure was still 0:11:50.640 --> 0:11:53.240 at seven point nine percent. For more, let's bring in 0:11:53.240 --> 0:11:56.800 Bloomberg senior UK economist Dan Hansen. Dan, what is your 0:11:56.800 --> 0:11:59.080 expectation then for this Bank of England meeting? The last 0:11:59.080 --> 0:12:00.840 time around the bank gave it's a bit of a surprise. 0:12:01.200 --> 0:12:03.960 Yeah, they did, and I think looking at this meeting, 0:12:04.000 --> 0:12:06.560 there is I think, at least to my mind a 0:12:06.559 --> 0:12:08.680 fifty to fifty split, fifty to fifty chance if you like, 0:12:08.720 --> 0:12:10.760 between a twenty five and a fifty basis point hike. 0:12:12.360 --> 0:12:16.120 You mentioned, they're the inflation data for us that probably 0:12:16.160 --> 0:12:20.079 tips the balance towards a twenty five, but it's certainly 0:12:20.080 --> 0:12:22.400 going to be a very close call. I think what 0:12:22.440 --> 0:12:24.800 you have to look at is, of course there's been 0:12:24.840 --> 0:12:27.000 some good news on inflation, and you've just mentioned it there, 0:12:27.160 --> 0:12:30.000 But I think the underlying picture goes to your first 0:12:30.040 --> 0:12:33.040 point about stickiness. So the composition of inflation is actually 0:12:33.280 --> 0:12:35.720 looking stickier now than the bank was expecting back in 0:12:35.760 --> 0:12:38.640 its May forecast. And it might be the case that 0:12:39.280 --> 0:12:42.200 looking at that, that's the thing that dominates and pushes 0:12:42.240 --> 0:12:45.920 them towards a fifty basis point hike. As I say, 0:12:45.920 --> 0:12:48.360 we think probably on balance that the good news on 0:12:48.400 --> 0:12:50.920 the headline figure is enough to push them back towards 0:12:50.960 --> 0:12:54.680 twenty five. They've done a lot already and doing another 0:12:54.720 --> 0:12:57.880 fifty again would be quite a would be quite a 0:12:57.920 --> 0:13:00.200 message to send. But I think on balance they'll they'll 0:13:00.280 --> 0:13:01.120 up for a smaller move. 0:13:01.320 --> 0:13:04.480 Where is the stickiness coming from now and the inflation data? 0:13:05.120 --> 0:13:07.720 Yeah, so it's if you look at it, it is 0:13:07.800 --> 0:13:11.400 services that's running it probably twice a little bit above that. 0:13:11.440 --> 0:13:13.840 In fact twice it's long run average, So it's sup 0:13:13.840 --> 0:13:16.120 at seven point two percent long run average about three 0:13:16.160 --> 0:13:18.480 point three percent, so it's more than twice it's long 0:13:18.559 --> 0:13:21.839 run average, and of course that's a reflection of I 0:13:21.840 --> 0:13:23.800 think it's a reflection of two things. Actually, one is 0:13:23.960 --> 0:13:26.160 the obvious thing is the labor market, because a lot 0:13:26.160 --> 0:13:30.240 of services firms their biggest cost is labor. But I 0:13:30.240 --> 0:13:34.040 also think there's an element of the lagged impact of 0:13:34.240 --> 0:13:36.520 high energy prices. So if you think back to last year, 0:13:36.520 --> 0:13:39.200 you've got a lot of firms who rightly would have 0:13:39.240 --> 0:13:42.040 looked at the outlook for energy price has been extremely worried, 0:13:43.040 --> 0:13:44.560 and I think a lot of them have locked in 0:13:44.960 --> 0:13:48.680 higher energy prices into their tariffs, and it's going to 0:13:48.920 --> 0:13:50.280 take a bit of time for them to roll off 0:13:50.280 --> 0:13:53.800 onto the new lower tariffs, because obviously wholesale energy costs 0:13:53.800 --> 0:13:56.840 have fallen and households have started to feel the effect 0:13:56.920 --> 0:13:58.360 of that, and we'll see that in fact in the 0:13:58.440 --> 0:14:01.719 July data, the July inflation data. But I think that's 0:14:01.760 --> 0:14:04.800 one reason why it serves as inflation as well as 0:14:04.800 --> 0:14:08.160 the labor market has been sticky, there's been a little 0:14:08.160 --> 0:14:10.360 bit better news on the good side. As I've said 0:14:10.559 --> 0:14:13.719 many times to before, there are reasons thinks that think 0:14:13.760 --> 0:14:16.719 that goods prices will continue to or goods inflation. I 0:14:16.720 --> 0:14:19.800 should say we'll continue to ease off, but the stickiness, 0:14:19.800 --> 0:14:21.640 to answer your question, is really in services. 0:14:21.800 --> 0:14:24.240 Yeah, and that's interesting because of the changeus what we've 0:14:24.240 --> 0:14:26.600 been talking about over the past couple of months of 0:14:26.640 --> 0:14:29.400 inflation prints, where really the energy picture was the part 0:14:29.440 --> 0:14:31.280 that was kind of helping to bring things down. As 0:14:31.280 --> 0:14:33.920 you say, the fact that getting getting baked into the 0:14:33.920 --> 0:14:36.360 service's side of the picture if we think about the 0:14:36.360 --> 0:14:38.080 broader economic picture and all this, because this is the 0:14:38.080 --> 0:14:40.320 dilemma the Bank of England is having, is that, you know, 0:14:40.400 --> 0:14:44.120 the more at hikes obviously, the greater the risk of recession. 0:14:44.120 --> 0:14:46.840 The latest PMI data for the UK showed, you know, 0:14:46.840 --> 0:14:49.240 the flash number of fifty point seven, down from fifty 0:14:49.280 --> 0:14:50.800 two point eight in June. Does that kind of tell 0:14:50.880 --> 0:14:53.080 us that the Bank of England's rate hikes so far 0:14:53.120 --> 0:14:54.600 at least are working. 0:14:54.520 --> 0:14:56.840 Well, they're beginning to Yeah. I mean we've seen up 0:14:56.920 --> 0:14:59.480 until this point that actually the response of the economy 0:14:59.520 --> 0:15:02.680 to everything it's been done and the high inflation, there's 0:15:02.720 --> 0:15:04.800 not been much change in the direction of the economy. 0:15:04.800 --> 0:15:08.400 We've had sort of broadly say stagnation over the past year, 0:15:08.400 --> 0:15:11.520 but we haven't had anywhere near the level of weakness 0:15:11.640 --> 0:15:16.560 that we and almost all other forecasters had been expecting. 0:15:16.600 --> 0:15:19.080 I mean, I think just on the PMI itself. I 0:15:19.080 --> 0:15:21.120 didn't mention it in the answer to the first question, 0:15:21.160 --> 0:15:22.920 but I think that's another reason to think that twenty 0:15:22.920 --> 0:15:26.000 five might be a better bet than a fifty, just 0:15:26.040 --> 0:15:29.040 because there is now a little bit more evidence that 0:15:29.080 --> 0:15:33.280 this very rapid tightening cycle is beginning to take hold 0:15:33.720 --> 0:15:36.560 on the economy. And I think what we'll get as 0:15:36.560 --> 0:15:38.800 well as as a policy decision, of course, is a 0:15:38.840 --> 0:15:40.880 forecast from the banking and this time around, and we'll 0:15:40.880 --> 0:15:43.800 see what they're thinking in terms of where the economy 0:15:43.840 --> 0:15:48.760 is heading. They'll have to take in the rising yields 0:15:48.760 --> 0:15:51.120 that we've seen to the higher path of interest rates. 0:15:51.600 --> 0:15:55.720 So it'll be really interesting to see how they put 0:15:55.760 --> 0:15:58.000 that in and where it ends up. Because of course, 0:15:58.040 --> 0:16:00.560 remember back in May they took the recession out of forecast. 0:16:01.560 --> 0:16:05.400 You know, there's a question this time exactly that is 0:16:05.400 --> 0:16:07.440 it going to go back in. And just for sort 0:16:07.480 --> 0:16:09.640 of people that don't know the ins and outs of 0:16:09.640 --> 0:16:12.280 the Bank of England's forecasting process, what the bank does 0:16:12.400 --> 0:16:14.960 is it takes the market curve as given and it 0:16:15.000 --> 0:16:17.960 puts that into its forecast. So and then the forecast 0:16:18.000 --> 0:16:20.800 gets spat out based on that market curve, so it 0:16:20.800 --> 0:16:22.720 gives it. The point of doing it is to give 0:16:22.760 --> 0:16:25.640 a sense of whether the market is right or wrong 0:16:25.960 --> 0:16:27.920 in terms of the path of interest rates, whether that's 0:16:27.960 --> 0:16:31.320 consistent with two percent inflation in the medium term. So 0:16:31.880 --> 0:16:33.880 it's sort of the the bank is sort of hostage 0:16:33.880 --> 0:16:36.320 to that yeal curve, so it goes in and then 0:16:36.720 --> 0:16:39.120 the forecast gets spat out back to it, and you 0:16:39.200 --> 0:16:42.720 sort of see whether that path of rates is consistent 0:16:42.760 --> 0:16:45.760 with one two percent inflation in the medium term, and second, 0:16:45.800 --> 0:16:47.840 whether it's consistent with and the economy going through a 0:16:47.880 --> 0:16:48.880 downturn to get there. 0:16:49.120 --> 0:16:51.000 So of course the forecast is going to be very 0:16:51.000 --> 0:16:53.840 closely watched in Westminster as well, because the Prime Minister 0:16:53.880 --> 0:16:57.200 has made his number one priority having inflation by the 0:16:57.360 --> 0:16:59.800 end of the year. After the most recent inflation figures, 0:17:00.000 --> 0:17:02.720 bloombergerre speaking to John glenn as a minister in the 0:17:02.720 --> 0:17:06.320 Trousury Department, and here's his take on where the inflation 0:17:06.440 --> 0:17:07.200 challenges lie. 0:17:07.240 --> 0:17:10.000 Now, what I'm doing is controlling public spending to make 0:17:10.040 --> 0:17:12.480 sure that we don't do anything that adds fuel to inflation. 0:17:12.960 --> 0:17:16.200 But of course we welcome these figures. There's no complacency 0:17:16.240 --> 0:17:18.040 though here in the Treasury. We work very closely with 0:17:18.080 --> 0:17:21.000 the Bank. As you say, they do interest rates, we 0:17:21.040 --> 0:17:24.359 do government spending. But these are tough times for families 0:17:24.359 --> 0:17:27.120 in the UK. But we going be relentless in our 0:17:27.440 --> 0:17:30.280 commitment to have inflation and get it down to the 0:17:30.359 --> 0:17:31.679 long term trend two percent. 0:17:31.880 --> 0:17:34.840 That Johnnie, you're going to do anything actively to reach 0:17:34.920 --> 0:17:37.919 your number one target of halving inflation by the end 0:17:38.000 --> 0:17:41.960 of the year. For example, X Banking and policymaker Kate 0:17:42.040 --> 0:17:43.800 Barker suggested you should raise taxes. 0:17:44.040 --> 0:17:46.840 Well, look, we don't want to raise taxes. What we're 0:17:46.840 --> 0:17:49.040 trying to do is make sure that we spend money wisely. 0:17:49.080 --> 0:17:51.640 We had a spending review a few years ago. Obviously 0:17:51.680 --> 0:17:54.680 meeting those numbers is now really hard in a high 0:17:54.680 --> 0:17:58.159 inflation rey or higher inflationary environment. So my job is 0:17:58.160 --> 0:18:01.480 to make sure that we spend wisely, that we accommodated 0:18:01.480 --> 0:18:04.960 the pay Review Body announcements last week for public sector 0:18:05.280 --> 0:18:08.640 pay that increased between six six and a half seven 0:18:08.680 --> 0:18:12.240 percent for one of the workforces. We did that by 0:18:12.320 --> 0:18:16.520 not by taxing more, not by borrowing more, by asking 0:18:16.560 --> 0:18:20.320 government departments by asking cabinet ministers to absorb that additional 0:18:21.080 --> 0:18:25.200 pay requirement. So we're being relentless in focusing on making 0:18:25.240 --> 0:18:28.320 sure that we manage public spending and don't add to 0:18:28.359 --> 0:18:30.800 the inflatory pressure which the IMF and others have warned 0:18:30.840 --> 0:18:32.240 us we would do if we borrowed more. 0:18:33.000 --> 0:18:35.359 That was traguriy Minister John Glenn speaking to Bloomberg, Zazie 0:18:35.359 --> 0:18:39.600 Brayden and Anna Edwards Dan. There'll also be a question 0:18:39.680 --> 0:18:43.080 too about where we are in terms of the pain 0:18:43.200 --> 0:18:45.159 the Bank of England is inflicting and the likelihood of 0:18:45.200 --> 0:18:48.560 a recession. Remind us what the expectations around recession are 0:18:48.600 --> 0:18:49.040 in the UK. 0:18:49.840 --> 0:18:52.320 So I think the consensus is that it's certainly this 0:18:52.440 --> 0:18:55.360 year it's going to be avoided, and I think if 0:18:55.359 --> 0:18:57.760 you look at consensus forecast it's that it will be 0:18:57.800 --> 0:19:01.720 avoided as well next year. We're a little bit more 0:19:01.720 --> 0:19:06.360 pessimistic about it, we do, you know me, but we're 0:19:06.400 --> 0:19:09.480 a little bit so we're a bit more pessimistic. We 0:19:09.480 --> 0:19:11.920 do think there'll be a modest downturn in the economy. 0:19:11.920 --> 0:19:14.919 But I think you know, people jump on this idea 0:19:14.960 --> 0:19:16.960 of recession when you when you sort of ride it 0:19:17.000 --> 0:19:20.840 on a piece of paper. But I think the context 0:19:20.840 --> 0:19:22.959 here is that, as I've said before, the economy has 0:19:22.960 --> 0:19:27.080 been stagnating, so it doesn't take much for a negative 0:19:27.160 --> 0:19:30.920 quarter of growth, and we're what we've penciled in the 0:19:31.040 --> 0:19:33.919 peak trough fall in GDP of only one percent. That 0:19:34.000 --> 0:19:36.800 is not particularly significant. Compare it to the nineties. It 0:19:36.840 --> 0:19:38.760 was a three percent full of the eighties, it's four 0:19:38.760 --> 0:19:40.720 and a half percent full. Of the financial crisis, it 0:19:40.760 --> 0:19:43.720 was over six percent fall in GDP, So you know, 0:19:43.760 --> 0:19:46.320 they're far deeper recessions in history. 0:19:46.480 --> 0:19:48.919 Okay, are the more interested in those forecasts will get 0:19:48.960 --> 0:19:50.359 from the wank of England with They're just sais And 0:19:50.400 --> 0:19:53.800 thanks to Bloomberg Senior UK economist Dan Hansen. I'm Stephen 0:19:53.840 --> 0:19:56.200 Carroll in London. You can catch us every weekday morning 0:19:56.200 --> 0:19:58.760 here for Bloomberg Daybreak Europe, beginning at six am in 0:19:58.760 --> 0:20:00.920 London and one am on Wall Streets. 0:20:00.960 --> 0:20:03.800 Tom, Thanks Steven, and coming up on Bloomberg day Break weekend, 0:20:03.840 --> 0:20:07.240 Governor Ron DeSantis has a big economic speech this week. 0:20:07.359 --> 0:20:10.680 We'll get a preview. I'm Tom Busby and this is. 0:20:10.600 --> 0:20:25.280 Bloomberg broadcasting live from the Bloomberg Get a Active Brokers 0:20:25.320 --> 0:20:28.719