Good morning. It's Thursday, the third of August in London. This is the Bloomberg Daybreak You Up podcast. I'm Caroline Hepka and.
I'm Stephen Carroll. Coming up today, the CEO of the energy giant SSE tells us the government needs to reassure markets on green investments.
The Bank of England is getting ready to raise interest rates, but will they opt for twenty five or fifty basis points?
And former US Treasury secretaries call for action on the country's ballooning debt.
Let's start with a roundup of our top stories. The UK government will boost the funding available to renewable energy projects, with the struggling offshore wind industry benefiting the most. The total pot available for the current subsidy auction will increase by twenty two million pounds to two hundred and twenty
seven million pounds, so up by eleven percent. It comes as the CEO of the UK's largest renewable electricity company, SSE, has told the Bloomberg UK Politics podcast the government needs to reassure markets on its green credentials. Alistair Phillips Davies says that green investment depends on the government's words.
It's for them to reassure markets and make sure that there is a clear commitment to creating the industries that we've started creating so successfully. In the UK.
Phillips Davies is overseeing dog A bank going online today. This is the UK's largest offshore wind farm, which will power some seven percent of the national grid when fully operational. We're going to dive into that story in more detail in just a few minutes.
The Bank of England is expected to raise rates again later, with a recent inflation slow down giving policymakers scope to scale back the size of hikes. Economists and investors are anticipating the benchmark lending rate we'll go up by at least a quarter point to five and a quarter percent. The view comes as the latest inflation unemployment data showed
easing pressure on prices. Speaking to us little earlier, and Elitch, deputy for Economist at the CBI, told us UK GDP has held up surprizingly well in the face of higher rates.
The economy has proved more resilient so far than many of us were expected, and indeed the last growth data out from the URNS reinforced that point. But of course, with so many fixed rate mortgages due still to refix at higher rates. There's huge vulnerability in the border economy.
Anna Leitch also told us the UK recession is now a distinct possibility. We will bring you the decision from the Bank of England live here in Bloomberg at twelve pm London time, with a press conference led by Governor Andrew Bailey half an hour later.
Now, two former US Treasury secretaries have called for action to tackle the country's ballooning debt burden. Speaking just hours after Fitch stripped America of its Triple A credit rating, Hank Paulson and Timothy Geidner shared their thoughts with David Weston on Blueberg's Wall Street Week, and Hank Pauson didn't mince his words.
Our first culture jectory is concerning, but we're a rich country and we've got time to deal with it. But we need to do some things in the next few years to change that trajectory, and I think that's going to be very important. To do that. It's going to take doing things on both the spending side and the revenue side.
Paulson's successor as Treasury chief, Timothy Geidner, was asked by David weston whether it would take a crisis before Washington did address its borrowing needs. He answered, quote, I hope not. You get that full conversation on the Wall Street Week podcast, available on Apple, Spotify, or wherever you listen.
JP Morgan CEO Jamie Diamond says he's unhappy with plans for more stringent capital rules in the United States. The comments come just days after regulators released the long awaited proposals. Speaking to CNBC, Diamond said the measures will take will make mortgage and small business lending harder for banks.
It's phurely disappointing. I think these rules are I mean, I've always thought g Sify was a joke. Now we have operation overs capital, which I think is equally bad based on my rules, which kind of make no sense to me. And if I was the Feder'd be very careful about saying their models are perfect.
Diamond went on to say that hedge funds and private equity firms are dancing in the streets over tightening regulations for banks. The proposal from regulators would require big uslanders to set aside more capital, with the eight largest financial firms facing an increase of about nineteen percent.
Donald Trump is expected to appear in a Washington federal court today to face new charges that he conspired to obstruct the twenty twenty presidential election. This is the third criminal case against the former president as he seeks a new term in the White House. Speak to NBC, Trump's lead lawyer, John Lauro, says that he believes the former president will win.
They have to demonstrate beyond a reasonable doubt that number one, President Trump did not believe that all these irregularities were true, and number two that he did something to corruptly obstruct justice. And they can't prove that because everything he did was to get at the truth.
John Laura joined the former president's legal team in July and says that the charges are entirely politically motivated.
And treasuries are proving to be an increasingly ineffective hedge for stocks as the two move in tandem. Bond prices usually move in the opposite direction to the stock market, but the two started to move in sync as the Fed raised rates aggressively last month. The correlation between the asset classes was the highest since nineteen ninety six. This means the classic sixty to forty portfolio of stocks and
bonds offered investors little protection from volatilities. Those are some of our top stories on the program this morning, on a day of course, we're looking ahead to the Bank
of England decision as well. I'm interested in the latest results that we've had from Next So shares in the high street retailer in the UK up about a tenth of one percent, which, considering the overall fort Sea is down by one point four percent, is not bad actually, But essentially this is a big high street bell Weather, one that's often considered to be a good guide to the health of the British retailers in general, saying that there, you know, things are looking quite good for pry sales
rising at seven percent compared to last year. Their profit forecasts are up. They had said that warmer weather lull was potentially going to help people buy more clothing just in June. I think that was an early summer protection that has yet.
To realize as I carry my umbrella around the whole time. Yeah, look, that's that's a very good business story. But I also want to talk about this one that's going to be I think quite entertaining. Perhaps maybe we've got another American star coming to the UK. This is Tom Brady who is apparently buying a steak in Birmingham, Birmingham City. Let me just add minority steak. But it seems like so many stars. I mean, he's actually a sporting legend in the US obviously MVP of Well I think five times
in a row. But yeah, buying this stake. So it does seem to be that Premier League football is open to lots of foreign interest the minute.
Yeah.
Absolutely, I'll bring a bit of American star power, I think, to to Birmingham City while they're at it. Maybe well, let's turn to us another story that we're following here very closely in the UK, and this is the latest around renewable energy. A big development today with a new after a wind farm opening, but also moves by the government to update their subsidy scheme, something that has been the subject of conversation you've been having, Carola.
Yeah, absolutely, So the Dogger Bank off your wind farm, which is the largest UK wind farm to date, is being switched on today. So we had a conversation with the CEO of the SSE which is the Footy one hundred company, Alisa Phillips Davis, about this Lizzy Burden and I about the impact that dogger Bank is going to have coming online. Remember that the UK is a world leader really and in wind power. I know we sometimes hear that phrase used often, but I think it's true.
The UK also wants to triple offs your wind capacity by twenty thirty. The UK's got this legally binding target of becoming carbon neutral by twenty fifty. But then it is also so in this week that the Prime Minister announced hundreds of new licenses for oil and gas production in the North Sea. So we had this big conversation with Phillips Davis, the first part of which is just on the success of dogger Bank and what it will mean to UK energy production.
Have a listen.
It's a huge milestone. You're talking about a power band that will generate something like twenty terri or hours of energy, which is six or seven percent of the total UK requirement for energy, and the fact that it's doing that price is far far cheaper than we're seeing in the wholesale market at the moment, about fifty pounds. You know, that's a real boost for UK consumers getting much cheaper energy, and it's also homegrown energy, so we're getting much more
energy security out of it as well. And then all on the back of that you're also getting create clean green energy too, which is carbon free.
Okay, so that is in a relation to this dugger bank after a wind farm. Can that be repeated though, Caroline.
Well, I think there are a few issues here. First, there's a question mark about the commitment. I think of Rishie Sunak, who is not Boris Johnson, and maybe there have been some concerns about how committed he is, you know, whether he is as committees perhaps as the previous Prime minister has been. Then there's the big competition from the US and Joe Biden. The enormous amount of money that's going into renewables. Does that suck investment out of other
countries or away from other countries? And then there's also just the nuts and bolts of the whole business, And this is where the government announcement today this morning is so interesting. So it's about the cost of building wind farms, and then it's also about the subsidy scheme that the government backs. These contracts for difference is what they're called, and it gives the energy produces a certain price a cap of how much you know, they can make from
the renewable energy that they then supply. Now, the government has just announced this morning that it's going to increase contract for difference in the amount of money the total pot for that by twenty two million pounds. That's an eleven percent increase, and so the offshore wind will benefit
the most. The boss of SSE, though, has some doubts about whether that's going to be enough to overcome things, so we asked him about also, you know, all of these threats I suppose to renewable energy sources in the UK have listened to his response.
It's for them to reassure markets and make sure that there is a clear commitment to creating the industries that we've started creating so successfully in the UK, things like dog a bankll There'll be two thousand jobs created around that. In moving forward, we've obviously got the opportunity to build thousands of mega wat's more plans to create more jobs in the UK, to bring supply chain here as well.
Certainly something that we're working on with people to make sure that some of the big technology providers, whether they be turbines, towers or cables come to the UK and invest and build facilities in These are all things that I think all political parties can agree on, and I'm sure there'll be an important part of what all the political parties put out in their manifestos and what they look to brief on as we go into the autumn and winter.
Curring this conversation happening at a very timely moment, the Energy Secretary has just met with all of those big energy companies as well to discuss this issue.
Yeah, so it's meant to be Energy week, So yes, a lot is going on in this space. Grant Shapps met with well SSE for one, but also DF Shell BP and they've all got these big billion pound plans to invest in low and zero carbon projects. So it is very important. So the SSC CEO they're talking about, well, it's up to the Conservative government to really demonstrate their commitment here, which I think is quite a big statement
in and of itself. But then also we asked him, well what about Labor, the opposition party, what do you think of their overtures, their policies. Here's what he said.
We've certainly seen some strong rhetoric Rachel Reeves talking about wanting to be the next Green Chancellor and more generally from labor you know, significant ambitions, even more so potentially than the current government. They've signaled that they want to go quicker in terms of getting to twenty thirty and twenty thirty five. Having clean, homegrown energy is going to be really really important and I think all all the parties will see that.
So that was Alistair Phillips Davies, the CEO of SSE, the fifty one hundred constituent on the day that they bring online dog a Bank, biggest UK offshore wind farm so far, so really important moment for the UK's green energy transition. Can Britain remain a world leading offshore wind power? The government hoping with this extra pot of money for renewables that they've just announced this morning that that will be the case. But yeah, it's a really interesting moving story.
Certainly, is that fall into you to come on today's UK Politics podcast here on Bloomberg. Let's turn next to today's Bank of England decision. Though another rate I expected, but some questions over the size of that increase. I've seen you at UK economist Dan Hansen joins US and Studio with my mining to you, Dan Markets pricing in a roughly one in three chance of a fifty basis point hike. Could we be in for a surprise?
I think so. Yeah, I think there's there's a real risk of a surprise. Clearly, it wouldn't be quite as big a surprise as it was in June, where I think people were far sort of more focused on the twenty five basis point move. But I think if you look at the data, it has been really mixed. You've had, it's been very well documented. But the good news on headline CPI inflation, but setting against that, wage growth is still accecul our eting, particularly in the private sector, services
inflation is still very high. So there's this balance between headline inflation dropping and coming down, which is obviously the target measure and that's what the bank is ultimately charged with bringing back to two percent. But there are signs of persistence in the inflation process and that's something that they may may be more concerned about and opt for a fifty basis point hike.
Okay, what are you going to be watched out for then today in terms of guidance in terms of future hikes in the rate path.
Yeah, there's a lot to watch today because we get the forecast as well. But I think for us there are three things. Really. The first thing is the guidance, as you say, and whether that's essentially the data dependence remains, I think it will. I mean all the other major central banks are stepping into that realm. The Bank of England sort of moved there in February, has been dragged
higher by the data. All these data surprises we've been had, we've had, but I think they'll stick with the guidance they've got. I think the other thing to look at is the medium term inflation forecasts and the meat what they call the mean inflation forecast, so that is the risk adjusted forecast, the forecast that is adjusted for the
policymaker's perception of risks around inflation. And if they think that's going to be around two percent in the medium term, that's a pretty good indication that they think market pricing is broadly in the right place. So market pricing currently
looking for a peak of five seventy five percent. The other final thing I'll be watching is the near term headline inflation forecast, because that gives us an idea of what the bank is expecting in the near term, and we get a measure of what a data surprise looks like relative to the bank's expectations.
Okay, what about quantitas of tightening? Is that something that we should be expecting news on today?
Yeah, that's an interesting one. There's seen. There's been a lot of chatter about that, and I think I think it will they'll wait till September to make the announcement, but it's been I think a broader point here is that it's been so well trailed what they're going to it's very likely they're going to do somewhere between eighty
and one hundred billion for next year. We think it's going to be about ninety billion, and that purely reflects the fact that next year relatives this year, where they've done about eighty billion, there's going to be more of the stock of guilt's rolling off naturally, so redemptions occurring, but they'll keep the active sales. The amount of active sales roughly similar at ten billion pounds a quarter, So that leads you to the sort of ninety billion number
that we think. Well, they'll ultimately announce, but I think they'll probably wait till September. But as you say, Stephen. I think there is a risk of it today, but I don't think it's going to be a big surprise.
Yeah, And I think I would point listeners to our Bloomberg opinion columnist Marcus Ashworth on this point. I mean his perspective. I think it's quite interesting talking about the very big losses of being taken on the sales, you know, as the Bank of England does this, but the bank is determined to sort of stay the course anyway. He had some quiet Yeah, obviously a.
Very opinion view.
Yes, I mean quite far, but I think it's really interesting.
On the day Marcus has never met offense that he hasn't summer assaulted over to try and move to one point of view, Dan, I am interested in this idea of the bank over tightening and how much it's conscious of the risk that you know, this this is going to push the economy into perhaps a worse recession that it may already may or may not already be heading for.
Yeah, I mean they are going to be conscious of that. And I think one thing that's really interesting around this is the mood music from the government. So if you go back to the end of May, you had the Chancellor saying he'd be quite comfortable with recession if it meant bringing inflation down. We've now had essentially a one
eighty with the advisors. We've had the scoop by our Bloomberg News colleagues saying the advisers are worry about worried about the bank overtightening now and I think I think both those the Chancellor's initial comments would have played into the NPC's thinking at the June meeting, giving it essentially it's like a green light to go to go harder,
to do more. And I think, you know, in the back of their minds, and they are an independent body, so I'm not saying there's political influence, but I think in the back of their minds they'll be. There'll be some there'll be conscious that things have changed. The narrative has changed, the narrative has changed globally as well. That's
the other thing with the FED and the ECB. But I think domestically, I know it's only one inflation print, but that everything looks a little bit rosier now on the inflation front, we have recali Soon Act saying yesterday it was like at the end of the tunnel on the inflate in the inflation fight, so you can see that the mood music from the government has shifted slightly, But there is the way.
Is he right on that as they're lied at the end of the tunnel allow inflation? How does that compare to your forecast?
Well, I think they will get to five at the end of this year, so they'll meet their goal of halving inflation. The thing that I am sort of been worried about for some time now is that it's not getting to five or maybe even four, but it's getting from three or four down to two. That's the challenge. So you're going to get the easy wins, and we're going to keep getting easy wins five to four, maybe even three, but getting from three to two is the challenge.
And that's where you're talking about over tightening. The question is does the bank just do what it needs to do to get to two, because from their perspective, that is an overtightening, that's doing their job. But perhaps from a sort of someone in the UK's perspective, a recession, the recession that's needed to get from three to two
would be deemed overtiming and doing too much. Will we just be happy with three percent inflation rather than two percent inflation if it meant not underset or creating all these job losses.
This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond.
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I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe