Bloomberg Audio Studios, podcasts, radio news. They say's the Bloomberg Daybreak here at podcast, available every morning on Apple, Spotify or wherever you listen. It's Wednesday, the twelfth of February in London. I'm Stephen Carroll.
And I'm Lizzie Berden.
Coming up today, The Chancellor Rachel Reeves faces another growth downgrade as British recession fears mount.
UK taxpayers face a one hundred and fifty billion pounds bill for the Bank of England's quantitative easing program.
Plus Trump's tariffs and Germany's troubles collide in Hamburg. We'll have a special report on how protectionism is playing out in the key trading hub.
Let's start with a round up of our top stories.
The UK's Chancellor, Rachel Reeves, faces a new risk of having to make spending cuts after the government's fiscal watchdog downgraded its growth forecast. Blomerg has learned that the Office for Budget Responsibilities first private report to the Treasury puts the government on course to break its own fiscal rules bogs James.
Wilcock, sources of told Bloomberg the latest OBR forecast leaves the Chancellor facing a small deficit. The official report won't be published until the twenty sixth of March and will be updated before then, but the current numbers point to weaker growth, adding weight to the view that the Chancellor will need to raise government revenue in March if she is to stick to her physical rules of covering day
to day spending with tax income. This is tomorrow's growth data is expected to show the economy shrank in the last three months of twenty twenty four. Economists expect that GDP fell zero point one percent, following zero growth in the third quarter. Now the OBI will adjust their forecast in coming weeks to match the latest data, but so far surveys are pointing to a slow start to twenty twenty five.
In London. James Wilcock Bloomberg Radio.
Staying in the UK taxpayer as will end up paying one hundred and fifty billion pounds due to lassers in the Bank of England's quantitative easing program. The Central Bank estimates that plans to sell its barn portfolio will leave it with a whole the size of Britain's entire defense budget for two and a half years. The net lass is a purely financial measure and doesn't reflect the benefits of QE and stabilizing growth and preventing mass unemployment.
And the Bank of England Governor Andrew Bailey is warning against the dangers of multi manager head funds. Thus, as the body ramps up its monitoring of non bank finance inmokes, t BIO has more.
Ruthless hedge fund risk management policies pot a threat to financial stability. That's according to Andrew Bailey, who said multi manager funds deleverage rapidly in stress conditions, which can exaggerate market moves in a speech yesterday, Whilst the practice allows the firms also known as pod shops, to protect themselves, the Bank of England governor highlighted its potential to create
risks to the financial system. The trend is partially responsible for global regulators paying closer attention to rapid growth in finance activity outside of banks. Recent research from the Bank of England found hedge funds, asset managers and pension for could be underprepared in times of crisis. In London, Tima Adebayo Bloomberg Radio, one.
Of the world's most successful multi strategy hedge fund founders, Ken Griffin, has criticized Donald Trump's approach to tariffs. Speaking at the UBS Financial Services Conference in Miami, the Citadel CEO said the US president's trade plans dull the country's competitive edge and breed mistrust amongst allies. But there was praise for Elon Musk's efforts to cut government spending, which Griffin said he was grateful for.
This is a man who slept on the floor of his factory to make sure testils got produced. He will do what it takes to win. We want people who are in Washington who will do what it takes to help the American taxpayer and the American people win.
Ken Griffin's comments, comm as Democrats have questioned the Tesla CEO's unprecedented influence on the US government despite not being an elected official.
Well.
President Trump has directed agencies to comply with orders for job cuts led by Elon Musk's so called Department of Government Efficiency. A White House fact sheet seen by Bloomberg shows that agencies will be permitted to hire no more than one employee for every four that leave. Musk meanwhile, made a rare appearance in the Oval Office to defend his approach, which is involved obtaining access to sensitive computer systems and employee data.
Your tax dollars need to be spent wisely the things that matter to the people. I mean these things like it's just common sense. It's not draconian or radical. I think it's really just saying, best look at each of these expenditures and say, is this actually in the best interest in the people. And if it is, it's proved. But i's not, we should.
Think about it.
Elon Musk also used the address to increase his attacks on federal officials and judges that he says a stalling progress in cost cutting, calling for impeachment and accusing some of being corrupt and activist.
Federal Reserve charge around Powell says the Central Bank doesn't need to rush to adjust interest rates. Speaking to the Senate Banking Committee, Power reiterated his belief that policy makers could be patient before lowering borrowing costs further.
As the economy evolves, we will adjust our policy stamps in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably towards two percent, we can maintain policy restrained for longer. It's a labor market we're to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can use policy accordingly.
Bontels climbed after Jerome Powell's comments, but moves in rate bets where more muted markets are pricing, and around thirty three basis points of cuts in twenty twenty five, with the next move not expected until September.
Well, those are you top stories this morning? On the markets?
The stock six hundred is higher a quarter of a percent, the foot CE one hundred is flat to the upside, and SMP E MENI futures are flat to the downside.
In a moment, we'll bring you more on the gloomy outlook for the UK economy, plus a view from Germany's biggest port of the rising trade tensions with the US. But in the story I've been reading this morning, Lizzie, I don't know if you are a catastrophist, if you are always for the worst.
Stephen, how many mornings have we anchored together?
Do you not know that I am a catastrophist?
Well, I mean I was trying to give you an out there, but fine, I think you'd really enjoy JP Spinato from Blimber Opinion's latest article about this, The title is I Just found my nuclear war hide away. He's talking about Mendoza and Argentina, which he points out, I mean, it sounds bleak, but actually it's a very nice piece about all of the things that Mendoza has going for it. And it's not just the wine, by the way. He also talks about the fact that it's got mineral wealth,
renewable energy. The wine does come at feature, though I will admit it's also got mentioned in starred restaurants and skiing, so really something for everyone. And Jp writes that in the piece, which I mean, he obviously takes much longer to make the argument about the successes of this particular region and the strengths that it has as well, but he says that if the nuclear ballion goes up, that's where he hopes to be.
I can vouch for this, having been to Argentina recently. You can find me on a horse World goes to pot I shall be there myself.
Julie noted, let's turn back to matters closer to home now, the UK's fiscal challenges. Sources telling Bloomberg the preliminary forecast presented to the Chancellor from the Budget Watchdog, so downgrade to growth, leaving Rachel Reeves at risk of breaking her own budget rules. This ahead of the latest update on UK GDP, which we're going to get tomorrow Bloomberg survey of economists expecting to see a contraction of zero point
one percent. Our Politics and economics reporter Lucy Weis joins us now for more.
Lucy, good morning.
There are several updates in this OBR forecast to come, but what do we know about what the Chancellor has been told?
Yeah, so this is the first update that we've had so far, and at the moment it's all under wraps, so we know very limited amounts about it. But what we do know is the Office for Budget Responsibility has downgraded its growth forecast and that's causing a real problem for Rachel Reeves because that means that she's going to be scrambling to meet her budgetary rules at the moment.
At the moment, if we take these if we were to take these forecasts as the as the ultimate one, she'd have a small deficit when the actual report is delivered. But we've got two more updates until the final report is delivered in March, so that gives hopefully a bit of time for things to improve a little bit. You know, Rachel Ruths could could you know, adapt some policies to make the outlook of a little bit better, you know, market conditions might improve a.
Little bit more.
So, Yeah, we've got we've got a few things still in flux until March.
So that's the optimistic view, Lucy.
But you know, the words iron clad and non negotiable are often uttered by the Chancellor about her fiscal rules. What's she going to have to do if she has run out of headroom?
Well, exactly, this is the response that we've had from the Treasury when we put this story to them last night. You know, they have reiterated Rachel Reeves's words that the government's commitment to fiscal rules and sound public finances is non negotiable.
But I mean, you know, it does.
Leave Rachel Reeves in a really tough position because the moment we've either got she's either able to well, she's promised that she's not going to raise taxes anymore, so that leaves her looking at welfare cuts, or that leaves her looking at other public services cuts. So you know, if she if she really wants to, you know, kind of hit the measure that she's promised her own her own rules, then that's what's open to her.
Yeah, indeed, I mean that's going to be some very difficult decisions to be made by the Chancellor if she is presented with this dilemma as well. One of the other factors that, of course we're thinking about more broadly is the uncertainty over trade. And you've been reporting on how the UK is trying to avoid Trump's trade tariffs.
Yeah, I mean, that's still very much in flux at the moment. Obviously, we don't know whether Trump is going to levy the UK with any tariffs.
At the moment, we've managed to.
Escape relatively under touched. You know, we've seen him threatened, Canada threatened, Mexico, threaten, the EU even and it's although we haven't seen any sort of direct measures proposed against the e UK other than you know, around around the steel which is pretty universal. The UK is kind of very much at the whims of whatever happens to anyone else. Obviously, the EU is our largest trading partner, the US is
our largest single country, trading partner. So any trade war, any tip for tat spat that happens between the EU and the US, we're going to get caught up in
the middle of that, especially Northern Ireland as well. Obviously Northern Irelands post Brexit has this kind of very unique position of being you know, effectively still part of the EU Single Market, but you know, still part of the UK internal market as well, and there's you know, if there is a sort of tit for tat trade war with the EU, it's very uncertain as to how Northern Ireland will fit into that position.
Yeah, I was in Brussels last week and listening to the UK's Man for the EU, Nick Thomas Simmons, talking about the need for ruthless pragmatism. But you know, many people asking why not go the whole hog and do some go some way to revert seeing Brexit if you're really serious about growth.
But that question exactly.
Yeah, Rachel Reeves, as she keeps a close eye on these numbers from the Office for Budget Responsibility. Really great that we've managed to get our hands on a preview of the estimate that she would have privately seen.
Lucy White.
Great to have you with us our UK Politics and Economics reporter.
We thank you well.
We're still waiting for details of how the EU plans to respond to Donald Trump's tariffs on steel and aluminium, after Brussels promised it would hit back. The escalating trade tensions are adding to uncertainty in Europe. From Germans, Germany's federal election, which is taking place in less than two weeks time. Now, our senior editor Alan Crawford joins us for more from Berlin. Alan, you've been reporting from the German port of Hamburg. It's one of the most important
trading points in the EU. How worried are people there about the risk of a trade war?
Good morning. Well, this mood there is really one offul trepidation that people, companies, businesses, the port itself are all stealing themselves for what is to come.
When I was up there last.
Week and everybody really was saying that it's virtually impossible to calculate what is the media impact. I mean, this is a port that's been in existence for eight centuries, that they're used to the ups and downs, all sorts of turbulence. But what the agree on is that any kind of impact on global trade is bad for business.
And what's the risk to Germany from an escalation of this trade dispute with the US.
What are the numbers kind of look like? Allen, good morning.
By the way, Hey, good bar and Lizzie. Yeah, I mean, Germany is despite the flood of bad news that's been coming through in terms of the economy, it still is the world's number three economy after the US and China, and it's a manufacturing based economy. They live and die in terms of exports, two thirds of which go through
the port of Hamburg. So they're concerned both about Trump's tariffs and of course any retaliation and really this broader idea that the world is becoming more inward looking, protectionism is rising, and all of that can potentially affect global trade.
Of course, this is all playing out while Germany's election campaign is coming towards its conclusion, with the election on Sunday of next week. Economic issues have been central to that debate as well. How are these issues playing into the campaign in Germany?
Well, Hamburg is somewhat unusual in that it consistently tops the ranks of the highest GDP per capita of Germany's sixteen states, so it's frankly wealthy. At the same time, it's also one of the reasons I went there was that it's Olaf Schultz, the Chancellor's hometown. It's a bastion of support for his Social Democrats party and interestingly, the far right AfD party that we talk about that's running second nationally, it's nowhere in Hamburg, and so it's a
bit of an anomaly in that sense. But everybody agrees there that Germany as a whole needs to raise its competitive competitiveness. That's the single biggest issue for all of these businesses going into this election.
I mean, for anyone who's not following the.
German election blue black, Blue, or hasn't started yet, alan how much of a factor is it in whoever's going to be successful that they can tell a positive story about the German economy, that they can present a realistic way of dealing with Donald Trump when it comes to the tariff war between the US and the EU.
That is actually a very good point.
It's exceptionally difficult for exactly these reasons that we're talking about that we can see on show in Hamburg, that there's a limited amount that any government in a country like Germany, or indeed any other country in Europe or much of the rest of the world can do when they're faced with a global trade war that's instigated by
the world's number one economy. So that there is this sense that Germany, as an export dependent country, is really stuck in the middle between the US and potentially China and that and this is some of the fear that the next German government of whichever hu it is, may not be able to immediately rapidly enough tackle the issues at hand.
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