This is Bloomberg Daybreak Europe for this Tuesday, the twenty seventh of June in London. Coming up today a winter in retreat.
Bloomberg Economics says that Bank of England rate rises will push the UK into recession by the end of the year.
Talking taft, pudin labels, Wagner, mercenary, commanders, traitors, as progosion, denies, coop attempt.
Investors take flight, Odasset Management suspended its flagship hedge fund on surging redemption requests.
And these new toys and putting the I in IMF. Those are the stories we're looking at today's papers.
I'm James Orcock Plus retail therapy are decline in UK sharp price inflation offers a glimmer of hope for the Bank of England.
That's all straight ahead on Bloomberg Daybreak Europe. The business news you need to start your day in just one fifteen minute podcast on Apple, Spotify, the Bloomberg Business app and everywhere you get your podcasts.
Good morning, I'm Stephen Carroll.
And I'm Caroline Hepger. Here are the stories that we're following today. Bank of England rate hikes will push the
UK into recession by the end of the year. According to Bloomberg Economics, our economists expect a peak Bank of England rate of five point seventy five percent, leading to a year long recession and a one percent drop in GDP in twenty twenty four, but money markets are almost fully pricing in a six point two five percent by December for the Bank of England, raising the possibility of
a far worse slump. Alan Higgins, chief investment officer of Coots and Company, though, sounded a note of caution on a UK recession.
Definition's going to be an impact. That looks like quite a pessimistic forecast though, and what we've seen before from pessimistic forecast is that they just haven't come through that. On an underlying basis, the UK economy has performed a little bit better, so i'd push back a little bit against that and also turn it into more of a global concern rather than a UK concern.
Alan Higgins. A slightly more UPBEATA assessment is backed by new data showing that UK food price inflation is beginning to ease somewhat. The British Retail Consortium says that price rises may have peaked with food inflation and wider shot price inflation cooling for a second month in a row.
As central bankers gather in the That will bring you more details on that central bank meeting also from CenTra, where we have central bankers from across Europe and indeed from also the Federal Reserve in the Bank of Japan gathering in Portugal today for that forum. Bloomberg's editor at large Francy Lackware reports a lot.
Of debate on officials about what to do with three rises, and they'll get vital FaceTime here in Central Portugal to iron out their differences. The question is whether a pause is warranted to appraise is still unfolding effects of policy tightening to date, or whether more action is required after the summer break to attack called stubborn underlying price gains from Central Portugal. Franc In Lakwel Bloomberg Radio Now.
Russia's President Vladimir Putin has condemned the leaders of the Wagner Mercenary Group as traitors. In his first public comments since the weekend's revolt, the Russian leader said the attempted mutiny had failed to divide the country.
Dear friends, today I address once again all Russian citizens, I thank you for your endurance, solidarity and patriotism. Civil solidarity showed that any ransom, any attempts to organize internal unrest are doomed to fail.
Putin's pre recorded address to the nation, spoken there through a translator, came hours after Wagner leader yevguiny Plagosan insisted that he hadn't been attempting a coup. The Mercenary chief said that the march on Moscow by Wagner troops had been a protest about injustices and mistakes made during Russia's invasion of Ukraine.
Oh The asset management has suspended two more funds, including its flagship, after being hit by redemption requests from investors. Investors have been fleeing the firm after fresh sexual assault to allegations against founder crisp and Odi, which he denies. The firm received with droll requests amounting to about nineteen percent of the flagship ODI European Hedge Fund and thirty five percent of the OEI MAC Fund for the next dealing day on July third.
Us Chajuy Secretary Jianna Yellen plans to visit China in early July. In a further sign of cooling tensions between Washington and Beijing. Bloomberg's Washington correspondent Marie Haudn broke that news. She points out that Yellen would be the second US Cabinet official to travel to the country in recent months.
She has continuously said, even an interview with me at the G seven Finance ministers meeting in Japan, that when their time was appropriate, she had all plans to go, and then of course we're on the heels a surgery state Anthony Blincoln's trip, he just wrapped that up, so that really opened the door to have more of these principle to principal meetings between Beijing and Washington.
And Marie Houdan, she says that the trip will include high level economic talks with Yellen's new Chinese counterpart. The visit comes as but the Biden administration continues to work on an executive order that would regulate and potentially cut off certain US investments in China.
Well.
That news comes as Chinese premier spoke out about what he called de globalization trends in the West. Speaking at the World Economic Forum in Tianjin, Li Kiang said the economic issues should not be brought into the political sphere.
Some in the.
West are hyping up the so called phraseologies of reducing dependencies and de risking. These two concepts, I would say, are forced propositions. Governments and relevant organizations should not overreach themselves. Still less, overstretch the concept of risk or turn it into an ideological tool.
Speaking through a translator of Chinese, Premier Are also told the audience in the northern Chinese city that the world's second largest economy is still on track to hit its annual growth target of around five percent.
Credit Sweee has agreed to pay nine hundred thousand dollars in fines over allegations that it reported trades late and misapplied key indicators to hundreds of thousands of transactions. The US Financial Industry Regulatory Authority said that the bank's brokerage reported about nine thousand trades late between November twenty fifteen and March this year. The transactions involved securitized products, corporate debt,
and agency debt securities. According to FINRA, The news comes after UBS closed its deal to purchase Credit Suite earlier this month.
So as our top stories on the program this morning, big focus for markets today is the ECB's Policymaking Forum in CenTra in Portugal. We're bringing you Christine Laguard's opening address from that event in just under an hour's time here on Bloomberg Radio. But we're also today focusing on a new forecast from Bloomberg Economics that continued rises by the Bank of England will push the UK into recession
by the end of this year. That's the research from Bloomberg Economics, Dan Hansen and Anna Andrada looking at a year long recession knocking one percent off GDP for rights get to five point seven five percent. We've got David Powell, his senior Euro Area economists for Bloomberg Economics, with us this morning. Good morning to you, David. Can you take us through some of the headlines of this new forecast from your colleagues.
Basically, inflation is proving much stickier in the UK than they originally thought it would be, and of course that's not unique to the UK. There's a similar story in the Euro Area and also in the US. But the UK really has the worst inflation problem. If we actually just look at current inflation rates in the G seven, it's the highest, so higher than the or the US but it has the energy shock that Europe had to deal with and also a very tight labor market that
the US had to deal with. But Europe didn't have the really tight labor market and the US didn't have the energy shock. So the UK is these kind of two big shocks pushing up inflation, and of course the the the Bank of England is having to tackle that problem.
That's worse than anywhere else, and it's probably going to require more tightening than we originally thought, than the markets originally thought, and then indeed the Bank of England originally thought, and of course that's going to have a negative impact on the economy. I think don't think we should kind
of exaggerate it though. It's not going to be a long, long, deep recession or anything like that if you compare it to past recessions in the eighties and nineties, and the global financial crisis is a very shallow downturn compared to that.
Okay, what would you respond to people like Alan Higgins, a cio ats, who says, look that even that is too pessimistic. Last ye we were very pessimistic about the potential for a session in a downtown It didn't really happen in the UK at the start of this year. What would you say to people who might say that's too negative.
Well, actually, this forecast shows a downturn that is less shallow than the economic models would suggest to me if we've pushed up the numbers a bit to adjust for that, the fact that the economy has turned out to perform better than expected all along and has not had a reaction as strong as originative expected to the tightening of monetary policy.
Okay, so I mean it's an interesting dilemma that Andrew Bailey is facing. Of course, he's joining his colleagues at the ECB's Central Banking Forum in CenTra. Where where are we expecting then peak rates for the Bank of England to land given the kind of gloomy outlook, Yeah.
We look for a peak at five point seventy five, so another seventy five basis points of tightening from where we are right now. We probably won't get an update on that from Andrew Belly at Centre. It's probably not the forum he would try to try to he would use to signal any policy changes, but of course the ECB may signals signal something about its future. There we've already had confirmation from the President of the VCB, Christine Legard, at the last meeting that essentially the great hike at
the next meeting in July is deal. So we know that and that will bring interest rates so the deposit rate to three point seventy five. But the big debate now is September. Christine Laguard said basically nothing about September. We've had various members of the Governing Council come out in favor of this or that. Primarily it's been the hawks speaking, and unsurprisingly they want another twenty five basis point increase in September, and we think that we think
it's going to go that way. In our forecast, we have rates peaking at four percent in the Euro Area in September, largely because core inflation like the UK, even though it's lower than the UK, it is proving to be sticky and is likely to remain elevated throughout the course of the summer before it shows a more obvious decline in the autumn.
The ECP, though, is still a long way from where the FED and where the UK Bank of England is. How much pressure do you think there will be versus of course, the beaten data that we've had out, for example from Germany, which has showed a mark slowdown in Germany already.
Yeah, I think the the well. Obviously, the CB's interest rate is lower we just said in the UK it's at five percent and we're talking a peak of four percent in the euro Zone. But of course different economies have different natural rates of interest which there are a lot of things that go into calculating that, and probably growth is a bit lower on a structural basis in the your area than the UK, and therefore the peak is likely to be lower in the area than in the UK as well as in the US.
Okay, Devid Hell, thank you so much for joining us the details of both that latest forecast for the UK economy, but the picture also facing those Eurozone policymakers as they gather in Portugal. That's our senior Euro Area Economistrom Bloomberg Economics David Powell there.
Coming up next, putting the I in IMF and Andy's new.
Toys Now the paper review on blue Bird Daybreak Europe, the news you need to know from today's papers, and.
Bloomberg stays walk up joins usn't udio with a look at what's in the papers. James let starts with the Telegraph. They've got research from the IMF pointing the finger at corporate greed.
Yes, and this all comes out from CenTra. The ECB conference in Portugal, the im presented the sort of lasist research looking at inflation there and the big thing is in the Eurozone. They say that companies pursuing profits is a bigger factor than energy prices were in spiking up
costs and the rising inflation. And that is fascinating because the narrative has long been that the Ukraine War has caused large rises and prices, and the IMF don't dispute that, but they say it is now a larger factor that companies pursuing profit margins. This is the greedflation phenomenon have pushed prices higher.
Now.
The danger here is not that companies seek profit, this isn't what the imfor they are a very capless organization, but that now workers will push back for wages in turn.
And it's fascinating that this in some ways echoes what Andrew Bailey has got in such trouble for saying, except because the IMF saying, well, companies shouldn't be pursuing profits in this way because now the dangers that workers will pursue wages and they fear that if in the Eurozone pay were to be increase by the five point five percent rated needed to get wages back to their pre pandemic level by the end of next year, companies share of the profits would need to drop to their lowest
level since the mid nineteen nineties for inflation to return to target. So it comes back to someone needs to feel the pain. Companies have pushed profits up to the telegraph the joins the dots and says there are some sales that are up by sixteen percent in some companies in the UK. And if they're willing to have these exorbitant profits with no sort of risk or no sort of losses, say, then it's going to be consumers filling the pinch or prolonging inflationory cycles.
Yeah.
On the other hand, it's the thing that has driven stock markets in Europe, of course, the strength of earnings. So yeah, that's tricky if you end up with an earnings recession. Andy Heldon has written in an editorial in The Financial Times about the industrial revolution the current one.
So, Karen, what we've got to remember here is everything isn't so bad. There's a big, bright future ahead of us.
And Andy Haldane sees it. He's been writing for years about seclis stagnation, this idea that Western economies are in this sort of permanent funk where they cannot find investment, R and D productive, you cannot get better, and he sees real promise in this current new industrial revolution, as he terms it, of you are seeing near suring, you are seeing military re militarization, you are seeing green technologies.
And these three races, as he terms them, our driving investment, are driving manufacturing, and are driving a reverse of some of the trends that he's been worried about for years. And he says, you know, he calls it a global arms race, but unlike some arms race, is one that is actually bringing serious, beneficient benefits to the Western world.
Yeah, although I mean rearmament, perhaps the one that might be seen is quite questionable. I mean green technology is great. I mean rearmament a little bit more fraught and perilous. But no, what does Haldane doesn't talk about the UK specifically, does.
He Well, no, so he looks framesus in terms of the Western world and the Eastern world and sort of the industrial changes that are happening there. And I think you point out quite a good thing and that interesting thing in that column, and that he frames these races reshaping the world economy. He had no point mentions if how well the UK is doing in any of those races, we could be first place or we could be last place.
How Dane, as a former central banker's very good at keeping his mouth tightly appursed on that one.
Like interesting.
Indeed, let's go to the Wall Street Journal next change writing about salaries.
Well, I mean normally people say, if you want to be happier, paid more. But the fascetting story in the survey that Wall Street Journals written up is that the majority of workers feel they're fairly paid, but the top of the satisfaction list across all industries are independent workers, according to a survey of twenty five hundred American workers.
So the find suggests that a while getting paid more and knowing what your work is important, that sort of authority and responsibility and knowing that you're your own boss brings up LEVELSS satisfaction that money might not be able to buy.
That's it. So it's not somebody on zero l's contracts.
Then on aggregate, Yes, although it is important to separate. Like you raised the point quite fairly that those on PEP companies like Uber, Instacart, door offer poor work editions, low pay for their gig workers, and one in five gig workers often couldn't afford enough food to eat, the same survey found. But that makes it all the more fascinating that on aggregate, those independent workers still top the survey.
This is Bloomberg Daybreak Europe. You're a morning brief on the stories making news from London to Wall Streets and beyond.
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I'm Caroline Hepka and I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg day Break Europe.
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