Hello and welcome to this special program on the UK economy. I'm Caroline Hepcare. Last year was pretty difficult for Britain. If you were listening to our coverage, the message was pretty clear. The data and the mood among economists and business leaders was rock bottom.
It looks broad based this weakness. It doesn't look like a said of one of factors. You know, we're not seeing the benefits of strong growth that we could be saying in the other countries.
Say right now, Unfortunately, the United Kingdom is stuck in a low growth situation.
The story of the year has just been, you know, one of stagnation.
Still very grim in terms of the slow rate of economic growth.
Jobs have gone unfortunately and have moved to the EU. So there's a definite impact already.
Next YUK government, we'll need an additional one hundred and forty two billion pounds just to keep things going as they are.
We are seeing a really declinism attitude amongst the British population.
We are now we can confirm it.
The UK is in recession. So the end of twenty twenty three did see the UK suffer two quarters of negative growth, a shallow recession. Add to that the long running problems of low growth and investment, the ingrained damage of Brexit, and more recently political instability, higher taxes and interest rates. Now Bloomberg's chief economics writer, Philip Aldrick and I summed this up in a long read and a
radio program some months ago called Britain a drift. But by the time we got to the new year twenty twenty four, something seemed to have shifted, and so Phil and I are back with this special report on whether there is a more bullish case to be made for Britain.
Philip Aldrick joins me.
Now, Phil, by the time we got to the start of this year, the pushback against underestimating the UK economy was really quite broad. Wasn't just the sort of usual optimistic entrepreneurs or even the almost libertarian Brexit supporting businessman Tim Martin who's the chairman of the pub chain Weatherspoons that we also spoke to. There are a couple of things that really got my attention in terms of the
positive case. So there was a conversation with Berenberg senior economist Callum Pickering and a note from Deutsche Bank senior economist Sanjay Raja about the eight silver linings for the UK economy. So I suppose I wonder, Phil, what got you thinking and focus also on this idea that maybe there's more of an upside for Breton.
A couple of things is there's some fundamentals which are pretty good within the economy if we think of the economy distinct from the public finances. You've got household balance sheets at their best in their best conditions since two thousand and two, that's the Bank of England. Corporate balance sheets are better than they have been for more than twenty three years. Those two things are pretty reassuring. You've got lenders, banks have got their capital is pretty strong,
so you've got these kind of underlying solid fundamentals. Plus, we've had six months of real wage growth that will continue. If you look at the Bank of Englands forecasts for the next couple of years, there is improvements in living standards and those improvements in living standards will come through quite quickly. In April when we have above inflation increases in both the national living wage, the working age benefits
and in the state pension. Plus the expectation for pay settlements this year is above five percent and we're going to have inflation at about two percent in April May, and then you've got the prospects of these tax cuts coming through, plus the National insurance tax cut that's come in January. So you've got these fundamentals which are a lot more solid, plus the prospect of consumer spending because living standards are just generally going to feel a lot better.
And so you know, twenty nineteen possibly was the last year that you could call normal before the pandemic. Then we've had a series of shocks, hopefully no more shocks this year, and this year will feel normal again and that should change the sentiment.
So that's some of the evidence base then that we started out with a bit of a journey because Phil and I spoke to a number of perhaps the most important CEOs and chairs in UK business right now, from insurance to asset management, advertising to property and retail. And if you've noticed, it has been quite wet in the UK for the past few weeks. My producer was pretty
determined to get me out there. He almost succeeded. In the UK, you learn to love the weather and you have to, but when the economy has been as clouded over as it has been recently, you start to long for any glimmer of sunshine. Last year, it was a drizzly day when I spoke to the Marks and Spencer chairman Archie Norman at the company's head office in Haddington. The drizzle rather matched his mood at the time. He was deeply concerned about post Brexit Britain. Since then we
know the UK has gone into recession. So with that in mind and the rain of course still coming down, I asked if his forecast is just as downbeat.
When you're running a business like M and as. Our philosophy is we row our own boat and the Caesar choppy or the Caesar calm, but our job is to make the boat go faster. Actually, our success is more to do with how successful we are and reshaping M and S than what happens in the market. And you know we've had a decent run, but a long long way further ago.
While Norman puts the success of Marx and Spencer down to the way that it's run, he does see light on the horizon for the consumer and that will help his business and many others.
Very importantly. Wages are now faster than inflation, faster than prices, so people are genuinely better off on.
Everage from the iconic British retailer to one of the country's largest pension providers. Legal and General Investment Management manages pensions for five million people. Michelle Scrimjaw is the CEO.
It's easier to focus on the challenges when you're looking outside the window of our UK headquarters and it's railing down and it's a great day here in London. Actually, the UK has been an amazing home for legal in general for over one hundred and eighty years.
But what of this year or next year will the UK see significant improvements in growth and wealth?
So if you think about where the world is today, there is a lot of uncertainty. There is geopolitical uncertainty, There is in certainty around interest rates. We're no different in the UK. We're part of that big ecosystem. So if I think about where things could go better, For sure, we're still in a post COVID environment. We're still in a post energy crisis environment that isn't going away, it is working through. So as things work through, there is
certainly an opportunity for interest rates to come down. Yes, we're in a technical recession, but as rates come down and that frees up more capital and it actually has an impact on individuals and where they are, because don't forget this is if there's a cost of living challenge here at an individual level, not just an economic challenge for the country. I do think there is opportunity.
L Jim's Michelle Scrimjaw seeing opportunities. So is it the start of a more bullish British economy? To know that? You also have to get at the heart of what drives economic sentiment for a large slice of the UK, the property market.
If monetory is call my tail the yeah, that would almost certainly become a problem.
Property prices well in July at their fastest pace since a global financial crisis for the third month in a row.
The housing market is on track to see the lowest level of home sales since twenty twelve.
But although house prices declined last year, they avoided predictions of a collapse, and while office rents in the US fell, in the UK that was not the case. British Land CEO Simon Carter told me he's now hopeful for us.
What really matters is unemployment. If people have money in their pocket, they spended our retail assets. I think it's encouraging that we might see real wage growth that help, because we haven't seen a lot of that. And similarly, when we're leasing office space, what matters is we do top end office space and it's headquarter space where businesses are using it to attract and retain talent, and of course they want to attract and retain talent when unemployment
is low. So I think if we can see a situation where unemployment remains relatively low, the economy grows a little bit and we see a bit of real wage growth, the momentum that we've seen over the last couple of years can continue, because that's been the odd thing in the property market that the investment market, because of higher interest rates, has struggled, But actually occupationally it's been very good and people have taken space.
So momentum in the right direction. But what about some acceleration. To get that, you need to tap into the buzzword on every CEO's lips ay.
I's going to be important.
We believe, we're excited about it.
We're addressing some of the most profound social or challenges with AI in ways they're transformative.
AI is going to change the nature of jobs.
We believe that AI is the most profound opportunity in our lifetimes.
You heard executives mentioned the word AI about fifty times.
Advertising giant wpp's CEO, Mark Read is focused on the benefits this once in a generation technology could deliver for Britain.
I think it's a massive opportunity for us. I mean, at one level you could say, well, the large language models, they're all being created in America. But actually what you can do with AI is get access to these models extremely cheaply. You know, we're not investing billions of dollars at WPPNI we can't afford it, but we are using the models created by open AI and Microsoft and Google and others to power our work. And so it's really
about applications of technology. And as you say, because we're a service based economy, it could our service structure much much more productive, much much more efficient, and I just think we have to lean into it and embrace it.
WPP is planning to spend about two hundred and fifty million pounds a year on AI technology. Microsoft is investing two and a half billion pounds in UK AI data centers over three years, and the government says that it wants Britain to be focused on reaping the rewards from the AI gold rush. Here's the Deputy Prime Minister, Oliver Dowden speaking to Bloomberg at last year's AI summits.
If you think about how financial services and the City of London have so enriched the United Kingdom over the past generation or two, I'm convinced that AI can do the same thing for the UK over generations to come.
So the government is persuaded of the benefits of artificial intelligence. But John Neil, the CEO of Lloyd's of London, says better performance also needs political stability.
I think we all need the confidence of the two term government, well whatever that government is, because I think the issues that we're grapping with, you know, and the need for confidence and the lack of the confidence that whether it's the public or whether it's business, we just need the sense that there is a plan and that plan is going to have to stretch beyond one term of government. So I would say we need change, and I'm not saying that has to be a labor government
versus a conservative government. We do need to change. We cannot carry on the way we are.
And he's concerned that even with the attempts by the big political parties to woo the city, too much is still being taken for granted.
Our advantage in insurance is the only marketplace for insurance in the world is here. There isn't another one, and I think we are standing up and representing the best of that or doing our best to illustrate how that value can be. We're growing, We're profitable. We need to be profitable if we're going to innovate and reinvest in what the future looks like. I don't think the same is quite true everywhere in financial services.
We've seen a.
Wealth of delisting on the foot seat. We've seen real challenges around investment and funding in the UK. We need to get that back on track.
You know.
Part of the livelihood of wellbeing of UKPLC is as a global financial services center.
There's a lot of ground to make up. Even with the Chancellor Jeremy Hunt's mansion House reforms, the Footy one hundred has lagged global markets since two thousand and eight. Investors pulled a record twenty nine billion dollars from UK equity funds last year, and Europe's too. He announced recently it will delist from London. Those numbers are not lost on other CEOs we spoke to. Here's wpp's mark read again.
I've learned the CEO never really to comment on our share price, but I mean, you can but look at your valuation relative to your peers in other markets and think, you know, there are some possible attractions to being in the US that I think the complexities of it make
it very difficult really in reality for most companies. And what we really need to do is get UK pension funds investing back in the UK market because you know, ultimately, you know, we have a sizable stock market and if it's not being supported by pension funds, you know, why would international pension funds support us.
So the UK economy is still under a cloud and no one expects rapid growth tomorrow, but there is hope that it could stop being rained on and at last enjoy some sunshine. So those were some of our conversations with CEOs and chairs in the UK. Philip Aldrick, how much changed do you think there's been since the last big piece that we did on the UK economy in April last year? How much hope is there that companies will invest more in the UK.
There has been real numbers supporting the change in sentiment. So there was the Global Investment Summit. We had thirty billion pounds worth of commitments from international investors and companies. Just a few days earlier, there'd been a twenty billion dollar commitment from South Korea for infrastructure and renewable investment.
We had these big commitments from Tata and Nissan and Stillantis or the car makers that they are going to put money into the UK into the electric vehicle revolution, and all of this was happening shortly after we did
our last piece. It all kind of started to come out and I spoke to the Investment Minister, Dominic Johnson, and he was saying there was real tepid tone about the UK overseas whenever we spoke to foreign investors, and that didn't really change until June July when the Tartar investment was made, and then since then there's been a
pickup and you can see that in the number. You definitely get a sense that businesses are feeling a lot more confident about the UK's prospects and you are seeing a bit of that actually delivered on the ground in the numbers.
So let's bring in Bloomberg's chief UK economist, Dan Hanson. Then on that point, what about recession? Does that get revised away? How much of a negative factor is it if we're talking about perhaps a more optimistic tone for the UK.
Yeah, I mean we've run the numbers and if you look, because it was, as you've mentioned, it was so shallow, there is a pretty good chance it gets revised away. If we remember back to twenty eleven twenty twelve when we had the double dip, it was revised away. And if you look at the way the ONS tends to revise its data, we think there's a pretty decent chance it gets revised away. I mean, we don't forecast revisions.
Some in the Bank of England has a bit of an industry in but there is a chance it happens. I mean, just for me sort of listening to everything. There one thing that's really striking about last year, and it's something that Andrew Bailey said actually recently, is that there was really strong real income growth in the UK and twenty twenty three so real income screw by nearly two percent, for the economy grew by zero point one
percent and that's a very weird combination to have. It speaks to the idea that if you're going to get an upside surprise this year, it stems from consumers, so they're going to have to dip into their pockets. And I actually think all of what Phil said there, and a lot of the people you interviewed, this idea about another year of very strong reel income growth is really important. But I think the thing that is the difference is around uncertainty. You know, we had what appeared to be
a big inflation problem over the spring. There's a lot of uncertainty about the inflation outlook, about the interest rate outlook, how high interest rates would need to go to sort the inflation problem out, and whether that would coincide with a massive rise in unemployment that would be the price?
Was that going to be the price? And against that backdrop, it's not really surprising people were a bit worried and didn't spend too much money this year fingers crossed and Phil said it there hopefully no more shocks, but things
look a bit more stable. Interest rates have probably peaked, inflation is coming down, and because these energy price effects, and it's going to come down quite sharply in the next few months, so the outlook looks more stable and that should shift sentiment, should shift confidence, particularly amongst consumers.
And I think that was very much reflected in the conversations that we had with Archie Norman, the chairman of Marx and Spencer, who kindly enough spoke to us last year and then again this year, and he was really underlining that fact. You know that he talked about it not just being M and S customers who are benefiting from increased wages, but it was also his own staff Marks and Spencer's has increased wages for stuff and that's several million people, you know, plus their families. So I
think that's an interesting thread. The other interesting thought that I think emerged from all of those many conversations that we had actually over a number of months Dan was the idea that economics is is relative, that the UK's performance is always relative, and then unfortunately the rest of the world is becoming more insecure and therefore the UK might look like a better bet.
I mean, how good is that for the UK?
Well, obviously on a global level it's not good that it looks a bit more insecure, but I think there is something in that in the sense that the UK we had a bit of a blip at the end of twenty twenty two, but generally the UK is seen as a pretty safe bet and amongst developed economies at least.
You have to remember that we are in a slower growth world now, the us A side and all the fiscal expansion that's taken place there that's driven that growth, But the us A side, if you look across the rest of the G seven, we're sort of the middle of the pack. It's like we're lagging.
You know.
The sort of sentiment and narrative around the UK can be quite negative and maybe that's a bit of a British thing. I don't know, but look, I think that if there is a labor talk about it, don't they the stability premium that idea, I think there is something to that, to be honest with you, and I think the lesson we had at the end of twenty two was that it can go wrong very very quickly, So there is huge benefit in steering a steady ship. And the idea is about keeping the business tax regime very
consistent and constant. That's really important. And I also think the idea that we're never going to get a two term parliament, but I think Parliament should think about the idea of having a ten year investment plan so that investment projects don't immediately get ditched when the government a new government comes in because you need, like there's no doubt you need more than five years to build most of these things. That that's just the reality of it.
So I think one of the really important things is to ensure that we have this steady flow of investment because when there is a new government, it's one of the easiest things to ditch if you have to sort of put in a austerity plan or whatever it might be.
Investment's just a really easy win. So that for me is something that it's not spoken about, and it's probably too optimistic to think it would ever come to pass, but I think it realistically, if you wanted something good on public investment, that's somewhere.
To look well.
A number of the seos did talk to us about that. I was quite surprised you and I were in on the very empty floor in the Lloyd's of London building speaking to John Neil, the CEO there.
They were refurbishing one of the.
Floors and actually He took us both by surprise because he said he wanted to see a two term government, whatever that government is, and so Phil we were quite surprised by just how warm a lot of the business leaders were towards Keir Starmer's Labor Party.
Yeah, it wasn't just John who was talking about two terms or long term planning to your point exactly on the sort of investment needs of the country. Michelle Scrimmageer was talking about it as well, how you need to think in ten year cycles if you're going to try and build the country and actually if you're going to try and build these businesses. What was really striking was that all of the people we spoke to felt pretty comfortable with a Labor government. Some of them may have
even suggested they would vote Labor over the Tories. Definitely. The good news in general from them is that they believe the political establishment now is stable compared with not just Britain's recent past of this trust and the mini budget catastrophe in Boris Johnson, the sort of chaotic period there, but also compared to other countries where you're seeing the
rise of populism. In this year where there's fifty general election is going to be held potentially two billion voters, and the UK is offering two managerial centrists and an opposition party that is basically saying we're not going to increase corporation taxes or VAT or not all the core taxes.
The messages. We understand that the most important thing is certainty, stability and sort of policy making clarity, because if we are going to get growth going, which is ultimately what we kind of are writing about, is how we get the growth going, and you've got no money at the government level to spend try and generate that you need to get the business community to do it and the investors to do it, and that the business leaders have
spoken to both political parties and they feel quite reassured that both parties understand the importance of what is needed to generate the business, the private sector driven growth that we're desperately after.
Well, the next conversation that we have for you is actually to that point, the interface between government and business. Phil thank you so much for being with me. That is our economics writer, Philip Aldrick, and to our UK Chief economist Dan Hansen for putting it into perspective.
I appreciate it.
We also though, sat down with Britain's biggest business lobby to get their reading of the situation in the UK now. The CBI Director General Rain Newton Smith, alongside Matt Clifford, who is an entrepreneur who shot to prominence just in November having organized a very short noticed the Prime Minister's AI Safety Summit. He is of course the CEO of Entrepreneur, first chair of ARIA and alongside the pension provider Pension b just turned profitable in twenty twenty four their CEO,
Rommy Savova. I was sitting down with them right here in Bloomberg's headquarters in London, and I began by asking the CBI's Rain Newton Smith whether she thinks there is a better case to be made for British business.
I do think the UK have so many capabilities, but we can't rest on our laurels, and to make the most of that, we need to make sure we have an environment which is really competitive globally in terms of
our overall tax landscape. I think we've seen some important steps that the government have taken on that, but there's still more to be done and we need to make sure that we're open to people and talent from around the world and that we create the right ecosystem around innovation to attract some of the best companies here into the UK.
Romy let me turn to you.
I mean you are an innovative business in the UK focus on the pensions industry, and this government under Ashisna and the Chancellor Jeremy Hunt have made quite significant efforts to try to reform, including the mansion house reforms. Do you think that those are going to make a significant difference in terms of boosting the economy by increasing investment and the options for pension savers to invest well.
I do think the mansion house reform still remain very much in a voluntary phase. I think that until we see the investment opportunities within the UK economy for pension funds, that most pension funds will simply seek out the best investment opportunities on a global basis, because pension funds like us are very much here to represent the views and the interests of consumers and so there has to be a wholesale alignment I believe between consumers and the pensions industry.
More broadly, Now there is some more slated reform within the pension sector which could be very transformative and it's something that the government has been calling a pot for life, meaning that consumers will be able to choose exactly where
their pensions are paid into by their employers. And should this go ahead in a reasonable timeframe, it can really give consumers the voting choice and the voting power to support the kinds of businesses and the kinds of investments, including in the UK economy that might benefit us all.
Now, I think the biggest issue for the UK, or at least the biggest change that could be coming to workplaces, is the artificial intelligence evolution revolution. You've been at the heart of that. You advised the Prime Minister, you helped to create. The AI Safety Summit happened just before Christmas, and that actually, despite all the NA says, it was
really very well received, wasn't it. But do you think that you've got the balance right between the risks the word safety and also the actual opportunities that the UK could see from AI.
I think the reason to care about safety is because of the opportunities. I mean, the reality is that if you look at where the public is on this issue, safety is right at the top of their concerns when it comes to AI, and you know, I would like to see AI broadly diffused through the economy. I think it's going to be. You know, probably most people listening are already seeing this in their everyday lives, but you know it's very poorly diffused today through businesses, through education,
through public services. Unfortunately, the UK historical has not been very good at technology diffusion, at least in the sort of software and Internet era, and it's very very important that happens. I think is probably the single biggest lever we have to improve productivity across the economy, particularly in public services.
I was really interested speaking to the chairman of Marks and Spensers, who is talking about how AI is being diffused really across the whole of the Marks of Spencer's business. Does the UK need to do that be more positive about receiving this what could be a huge revolution.
I think that's absolutely key that there's a sort of unified strategy across government, big business and small business to make sure that we get adoption. If you think about what that's going to take, there's a few things. I mean, one is we need to make the UK the best place in the world to build AI infrastructure. You know, it's really striking how much the AI revolution is really
a computational revolution. It's about being able to marshal enormous amounts of computational power into these models, both when we train them when we use them.
And so I think the UK has to get serious.
About whether it wants to be an AI superpower. If it does, that's going to need, you know, really tough decisions about things like planning, about things like energy. This is a very energy intensive revolution. But I think there's also a big education piece about how to use AI. The real challenge today is like can humans use AI well enough to make a difference to their own productivity. It's not easy, which.
Is exactly where I want to bring you into the CBI rain the skills gat in the UK, or simply the skills that the workforce has. Do we have those skills the willingness to learn to adapt to this new technology.
Are we training people quickly enough?
We absolutely need to do more.
I think we've got the willingness and the capability, and I think, as Mark was saying, it's some you know, there is the broader infrastructure need to see in place. So one of the things we've been talking with the Chancellor and with the Shadow chanswer is we need to now be focused on implementing planning reform to allow some of these infrastructure and data centers to be here in the UK. We also need the grid connections right to power that, and we need to make sure that that
is powered as well by renewable energy. And when it comes to the skills to deliver not just that, but how we adopt AI and I think one of the ways is making it understand understandable in the sense that this is just really increasing our compute, you know, our computing power. It is an evolution from some of the technologies that have existed before. But what we need to make sure is that we have capability that we have.
We're open to talent from around the world where some of the best, you know, we're attracting some of the best entrepreneurs here into the UK and allowing them to set up businesses and bring some of that know how, Ronnie.
Another piece of the puzzle is that the Chancellor has been talking about creating this britt ISA that would actually funnel money from pension funds into some of these growth UK businesses. Is that something that you think is going to make a big difference. Would you like to see it adopted at the budget? Well, I think the brid
er could definitely make a difference. It's again one of those initiatives that puts consumers in the driving seed of choosing the kinds of investments that they want to be selecting to save for retirement, and it will enable them to put their money to good work within the UK economy, possibly with some additional tax incentives. So it's very hard to find something not to like about it, other than the fact that perhaps it makes the ISO regime a
little bit more complicated than it already is. So if we can simplify isers a little bit more and offer some extra incentives for investing in the UK economy, it does feel like a win win situation. Rain I was speaking to the e Llowys of London CEO John Neil. He says, and he's adamant about this, we need a two term government in order to deliver the sort of stability to create that economic growth in the UK.
Do you agree?
Look, I think what we are trying to do is build those areas of political consensus and I think there is a clear focus on driving sustainable growth in the UK and we absolutely need to see some of that stability. So one example of that is we saw the chance to make a bold move in the autumn statement around
allowing full expensing around on capital. So that's making our business tax landscape really competitive for investment here in the UK and we've seen the Shadow Chancellor also back that policy, so that means whoever is in charge after the general election, we've businesses have the confidence that that is a policy that will remain. So I see our job and from any business leaders to really help to build where there are areas of political consensus to really drive some of
that long term stability. And I think we do need to celebrate some of the capability the UK has, So where are some of the areas we're really going to lead the world?
Man, do you think that it's net three for artificial intelligence and for the developments there that we have?
Stability and government are two term government.
But I think right now AI is not a part of aan issue and that's a really positive thing and I hope it stays that way. You know, I do think this is going to be the fundamental technology of the of the next decade, and.
I think the thing that's important to understand is by default the UK, the UK will you know, neither benefit nor software because of AI is entirely in our hands.
What happens, you know, AI is being developed, you know, as we speak, by very large, very capable organizations.
Actually partly in the UK.
We're very lucky to have one of the two top AI organizations in the world right here in London, in Google Deep Mind, the other beat Open Ai. And you know, they're going to continue to develop this tech regardless of what we do. It's going to almost certainly develop in capabilities very quickly. And really the question is doesn't just the UK want to be an AI maker or an
AI take over this decade? Are we willing to make whoever's in government the long term investments needed, both in into education and skills, in infrastructure, in adoption are required to harmash that power.
Robbie in terms of you know, we're thinking about whether there is a more positive case in the UK. I think part of the AI story is about the strength of the consumer, Whether the consumer and the worker in Britain you know, wants to take AI force, wants to adopt it, wants to grow. What's your sentiment around consumer confidence and therefore business confidence in Britain. Now, do you see the green shoots that you mentioned. Absolutely. I think
the UK is a consumer economy. Consumption accounts for about sixty percent of GDP, and so the UK consumer is the British economy, and therefore I think it's important to have that alignment that if consumers do well, ultimately business.
Will do well as well. And so the green shoots that we're seeing are very much on the consumer confidence side. We can see that sentiment is improving about future prospects. It feels like the cost of living crisis is easing. There is an expectation that inflation will come down further, that interest rates will come down, and ultimately that life will be more affordable and enjoyable. And it's that consumer promise that ultimately must be delivered for everyone to thrive.
So I think that's really the issue that we need to keep investing in making the UK consumer better off financially and I think better equipped. Because this is a high skills, a high services economy. There is absolutely every reason that everyone should thrive here.
Rain. I hear so much positive rhetoric from economists from business people. The data is not quite there yet, is it more than rhetoric.
I do think this year will be a better year, and it's building on what Rommy was saying. And inflation is coming down, it will down further. And what we're also seeing what has made it so difficult for so many households has been the fact that pay growth hasn't kept pace with that high inflation.
But as inflation comes.
Down and we're now seeing that, we should see some positive movement in pay in real terms. So essentially people's pay will reach further this year and that will help to drive households and give them more resources. So I think that is one of the reasons why people are seeing green shoots in the economy.
But of course that for.
Pay growth to be matched, you know, to outpace inflation in real terms over time. What do we need productivity growth, and that is about how we help our businesses invest in people, in skills, in innovation and in technologies like AI and you and show how that helps all of us be more productive at work, rather than seeing it as a technology that is to be feared. We are very lucky in the UK to have low employment unemployment and that has really been a bedrock for the UK economy.
So if we can start to see pay growth picking up in real terms and maintain that low unemployment, that will mean that the prospects feel brighter for the UK economy.
Okay, a last thought romy on the demographic challenges for the UK. I mean, you know, you have more than what two one hundred and fifty thousand customers or thereabouts you're plugged into the UK saver. In terms of the demographic challenges, there is you know, concern about whether people have enough savings. What is your view on those challenges around demography in Britain, the aging population that Britain does have.
Well, I think again there are positive sheots to look at. I think that large parts of the UK population have accumulated wealth that can serve them well into retirement, whether that's housing wealth or whether that is pension wealth. Pension wealth is actually an incredibly important constituent of the UK's overall wealth. So I think that there are savings that
are absolutely in place. And I think again, if you look at the younger aspects of the population, the younger demographics, they will be going through automatic enrollment, meaning they will be automatically saving every year and by the time they do retire, they are likely to have a good nest egg. It could be better, we could increase contribution rates further through automatic enrollment, but we are definitely on the right
track for retirement income provision. For those who have not yet made the retirement provision that they know that they need, there are personal saving solutions, and our view this year in particular is with consumer expenditure needs kind of easing, that there is more room for saving and we're certainly seeing that in the contributions that people are making into their penntry this quarter.
MA the wvpco party, was telling me that he is using AI tools, but there are all tools that have been created in the United States. He doesn't really need to invest that much money because those tools are there. And and so that question about the low investment issue that Britain does have.
I do think planning is a huge lever. I think there's lots of reasons why this is a great place to build AI infrastructure. But you know, planning and energy are a big bottlenecks. And then the other big one is talent, and you know everyone's brought this up. You know, if you want to make the positive case for the UK. Then the obvious starting point is talent. We do have the best universities in the world outside the United States.
We have you know, one of the best, maybe the best staffsp ecosystem in the world outside the United States. We have you know, really extraordinary range of tech companies. But the lifeboard of all those things is topped and we have to be willing and able to not just let the best and the bright sist from around the world coin in, but you know actively, you know, core and welcome them. That's the fuel that's going to make the UK investable.
That was Matt Clifford, AI expert CEO of Entrepreneur First, the Pension b CEO Rommy Savava, and the Confederation of British Industry Director General Raine Newton Smith. My thanks to all of them for speaking to me here at the Bloomberg headquarters. I thought they made the positive case for the UK really well, because the sobering fact is that many are still deeply skeptical. We surveyed investors for this program and ask them what their expectation is for living
standards in the UK in five years time. Out of four hundred and sixty three investors, forty eight percent say they expect living standards in the UK to decline versus G seven peers over the next five years. Thirty five percent see no change, but only seventeen percent say that britain living standards will improve. The UK must surely do better than that to turn around the economic picture more
decisively and the rhetoric into reality. Would I take away though, from all of my interviews over the past two months, is still really hopeful. Britain is fundamentally a high skills economy. Inflation is coming down, There's a political consensus around the need for economic growth. The Chancellor Jeremy Hunt's changes in the autumn statement for business investment taxes and possibly this new British ISA in the March budget are being welcomed.
Business leaders like the CEO of Lloyd's of London, John Neil, do think there could be an economic benefit from a new, more stable government and this wild new technology that is AI is full of possibilities and it's in our hands now. As Matt Clifford said, So I hope that the next time Philip Aldrick and I ask whether there is a bullish case to be made for Britain, the answer might be an even more resounding yes in London. I'm Caroline Hepker for Bloomberg Radio