Welcome back to London, Francine.
Dave, I missed you.
Where have you been.
I've been in New York. So I went there for a couple of days of hunger.
All of the world leaders right, yes, sending at.
The UN UN General Assembly. It's if you're in New Yorker you hate it because there was traffic gridlock. But if you're thrilling, everyone's there, did you see? So there were a couple of world leaders. Someone who we did not see was Rush Souning because he didn't go.
Didn't go. So Zelenski was there.
Biden did a pretty impassionate speech, and then we had our own Bloomberg event where Janet Yellen really put the focus on at zero and what the US will do in the couple of years ahead.
Actually a year ago, I was over there in the States watching with goggle eyes as the UK markets went into turmoil after the Liz trust Many budget. I can't believe that was now a year ago.
I remember those days of panic. It was chaos and the market's just going completely.
Bank of England had to intervene. I mean it was like the UK economy was about to completely collapse.
I'm from sin Laqua and I'm David Merritt.
Welcome to In the City, Bloomberg's podcast connecting you to the conversations at the heart of the City of London.
So, this week, on that anniversary of the panic, the termold in the UK economy. How lasting is the impact from that infamous mini budget that came out this time last year.
So the votes are in and the main message from this Bloomberg survey out this week confidence and UK assets have not fully recovered from Truss's forty nine day rule.
And as a general election looms on the horizon, what does it mean for labor and what is the city thing the prospects of a labor administration. So to help us dive into all of these questions, we've invited to the London Studio senior economics reporter Phil Aldrich and senior reporter and author of the Money Distilled newsletter John Steppek.
So welcome to the podcast.
Heks very much, Happy anniversary. It's great, No, it's so seriously, it's crazy thinking that it was twelve months ago. I mean it was chaos. We were looking at the guild market, we were you know, looking at Stirling Fall. Is it now much more stable.
Yeah, everything's more stable than that was crazy.
I mean it was the brink, right, we thought that the economy was about to actually.
Well, there was this same England had to do that intervention, didn't it put one hundred billion pounds on the line if it needed it to stabilize markets, which was you know, if you think back to how much they spent on Rbs and Lloyds in two thousand and eight, or the Treasury did, that was more money was put on the line.
You can if you're going to make those comparisons. But yeah, obviously they didn't need to spend that in the end, and things did stabilize relatively quickly because it was just an isolated UK showing everyone how rubbish we can be.
But this trust has come out swinging a bit this week, hasn't she. She's trying to rewrite history or the record.
Perhaps, doesn't she.
No, interest rates are higher now than they were after that that collapsed in guilt prices, So you do we over exaggerate that Britain was some sort of outlier as a result of what happened in the last year.
I'd say, I'm mons, I think we do a bet and I don't think that anyone talks about the pension finds enough when it comes to this. I do think that one reason that Breton kicked over is because a liability driven investment, which was basically the hedges that feign benefit pension find side so that when Entrance Street it's spaked, they've essentially margin called.
But she didn't know about right, So it was general.
You can be as patriotic as you want, but it was a mess. I mean, you're on right. You speak to people at dinner who weren't trading floors and they say, I've I used to run an emerging market's currency desk and I actually had to step away from that to try and help, you know, the sterling traders because they just were not used to the volatility. Yeah, so, I mean it was absolutely chaos. Now, whether it's right or wrong, it was like, we've never seen anything like that.
And this was what the service says, right, got the data here, eighty percent of the survey respondents that we pulled at Bloomberg Week said, and these are folio managers tried as returning busters. They said that confidence in UK assets has not free recovered.
Do you agree with that?
I mean I don't. I don't disagree with the fact that it was a cluster of epic proportions. I just feel there's elements of it that are slightly overlooked. I think Let's Trust made a lot of mistakes, and I think the way that Quasi qua ten came out and completely misjudged the tone of the markets at the time, which given that you know, he's a clever guy and a lot of economics background, probably should have thought of that.
At the same time, I don't think the bond vigilantes were resurrected, and I do think it's interesting that a lot of people who would have completely pooh poohed the idea that point of vigilantes even exist upuntil that point, are suddenly like, oh, you know, Britain really needs to watch it. So the fiscal side of things, because the fiscal side of things, it isn't the problem, and debt to GDP is not particularly worse. In fact, some of the middle of the pack, isn't.
It, the bottom of the G seven Yeah, ah yeah, so it's not really.
I think it's just been dangerous diagnosing exactly what happened. And there's a couple of subtle details that actually mean that, for example, we could spend more money if we wanted to.
But John, so if you put into contact and you're absolutely right, right, it's all in the nuance. Was it the mini budget that freaked people out? Or was it also the campaigning a couple of months before that was anti establishment, that was anti some of the institutions that have run the US faring.
Of Tom Scholar, those sorts of actions, and they're laying into the Bank of England.
I think that's probably reasonable. Like I said, they didn't make good governance decisions, and I definitely agree that the tone was wrong. I think low it's a combination of that thing of you kind of blundering into your mindfield are kind of like, you know, smoking and not realizing there's like a box of fireblocks behind you. It's that kind of thing. So it's absolutely not saying that they were blameless in any way and clearly wasn't very good.
But it's more I think one danger in misdiagnosing it just because and it then restricts ability to actually act as a country with better leadership because now everyone's like, oh, we've got to go back to stairty.
Other Wise the.
Boyd market will exploit and that's not the case anymore because the aldized them.
You know, I think I think I just obviously Liz Trust in her speech was saying, obviously interest rates are back to where they were, but that's not really a fair comparison, is it, Because what we had was a premium and everyone called it the more on premium at the time, way above all the other markets rates where they were in those days. And obviously what's happened in the subsequent years, everyone's rates have gone up. So you
know this that premium is in there. And the eighty percent of people who say that we haven't fully recovered, I think it does overstate the real picture because what eighty percent of the responders are saying is that, yes, we're not quite back to where we were, but basically we're pretty close about It's a bit like you know, twenty ten when the Tory, when the coalition government came in, they didn't actually have any decent policies and the fact
that there was a financial crisis was a brilliant form. They could just rally behind this disaster and say, hey, we've got a policy here. We're going to get the public finance as an order blah blah, fixed the fixed economy and basically Liz Trust screws it all up. And then obviously Richis has a very single objective to demonstrate that he is credible. Obviously he's carrying a lot of baggage, so that has been sort of useful for his own I.
Mean, he's got a small window that has any The other interesting I thought result from the survey was that two thirds of the respondents actually think labor would be better for markets, for UK markets and image now, so it's part of this just the kind of general fatigue with this conservative administration and a kind of optimism that whoever else comes in it's going to be better.
I mean, I would think, Saul. I mean, it's the Tories have been in power for like thirteen years with dms NO, and they are obviously entirely so obviously did with every single catastrophic decision that has been made along the way, and so it's not remotely surprising. Certainly, I don't think anyone really the people in this setting are back in label because I think it's for it's of reflets with the rest of the countries kind of feel into a great extent always political fatigue.
Yeah, but then you can't take away from labor that they are they are actively making a big effort to get the city on side here and none of they've got a Labor in the City group, which is basically to you know, have these endless conversations with market makers.
Story podcast, Thank you for listening.
And they've been sort of oiding and dining all the business they've had, all these breakfasts and rachel reeves and kids have made, you know, difficult decisions. This is the thing they have to demonstrate that they can be tough on themselves, to prove to this city and the business community that there will be prudent on the public finances. And they roll back the one hundred and forty billion pound green Plan, they're the two child benefit cap, they're
persisting with it. These are not popular policies, particularly among the labor. But what they are doing is demonstrate into that to that floating voter, particularly in the city, that actually, yes, thirteen years of Tory rule should come to an end because these guys are not going to be Jeremy Corbyn.
Phil Is there a danger first of all that you can't really tell the two parties apart come election day and we're still thin on policy, so we don't really know what they'll do with carried interest. Labor's wooing business, but they're not giving business a lot of details of what they plan to do.
Well, they've provided that you know, there will not be a wealth tax. They've also said so I think Reeves said that there will not be further tax rises above what I've already announced. The carried interesting, I think is part of one of those that they've done. I'm not hundred stent sure, but the other ones are the things that vat on school fees or private school fees.
Then the non bombs around the city probably that.
Yeah, but I think people can wear it, I mean, right, but the U and then yeah, the non doms is a is another one where they're going to crack down. So there are I think I've added it up to like there's a b seven billion of tax ris six to seven billion of tax risers that they have got in the works, which gives them seven billion to spend on other things. Basically that's above and beyond what the what the Tory plans are already.
I mean, really, they're just gott to not screw it up, right, I mean, you know, you know, Johnson talks about the huge win that he had and that majority.
They also to inspire.
But I mean it was, I mean, last time, it was Jeremy Corbyn, right, who people were allergic to. They just need someone who's saying.
I mean he's kind of move I mean, twenty players on the tailor all the time now and you know that's kind of the sense that they've moved back to the can of Blaby world rather than the Corbinate world. And to be fair, I mean, I mean, you're right, kiss Slam has done a very good job given that he was, you know, near the top when Jeremy Corbyn
was their candidate for PM. He might have essentially pub to the party of the kind of hardcore Corbinates or converted the ones who wear healthcore any reasonable sounding kind of politicians and the and Rachel Reeves Chross Ferriber was a shadow Chancela and kind of I would say, probably an economists.
Yeah, that is the sort of I know what I'm doing.
Yeah, So there's a sort of mainstreaming of it away from what it was the last time, which I think probably helps a lot.
But Sar starmin that inspire. I mean you talk about Tony Blair, the know they have a leader of the party, he's young. Does he just need to be more bold?
I think that I don't disagree with. If you can get an inspirational leader, that is great, but if you if you, if you're running the risk that you may he really isn't one of those games now. But it's like, just don't see anything really stupid and you want to and then you could be inspiring.
Cooper, who's a who's upposed, who was posted for David Cameron, who's been working with Kist. He talks about the Roy Jenkins quote about the ming VARs where you're walking across the slippery dance for carrying him invass you just want to be extraordinarily carefully, don't fall over and break it. And that's what and that's the sort of that's the
labor sort of policy approach at the moment. But he he does point out that actually, although there's this big vote against against the Tories, there hasn't been an equivalent big rise in sort of support for labor among in the polls, which is, he says, is much like the twenty ten election, where you saw a drop in the labor people backing labor, but not a big increase in the toy So then you ended up in the coalition.
So that's where to the point of an inspiration that they fall short on laboor body will fall short on inspiration and that could mean that they don't get a government of their own, have to end up in a coalition.
And actually digging into this the so a little bit more. The way it's phrased is the preferences for a clear labor victory. So it's just remembering, you know what it's like to have a hung parliament. Obviously that would be a bad outcompany markets, right if there was no clear winner whenever the election comes and there has to be some sort of coalition stitch together and the SMP comes into play and all these questions, that could be the most negative of all supermarkets.
I mean, I think that's a really good point because then you do get an awful lot of uncertainties coming into it, because if you get labor, you know roughly what you're getting. If you get the Tories again, you know roughly what you're getting.
Then, I mean, to.
Be fair, if if there was a clean slate behind Richy and Jeremy Hunt. Then there wouldn't be you know, they would kind of be much of a muchness between them, because I mean, I think the problem is that, I mean, as you're saying, Fraten, there's a lack it inspiration because there is a sense that we don't have very much to work with, and the problem is that all the radicalism and this is actually, guess the problem with politics
in general. The radical ideas are almost universally unpopular the things that we need to do, at least with some lobby groups. So we need to have you know, yes, in my backyardism, but that you know, the nimby is only we need maybe think about building HS two at some point. But you know that's kind of difficult to get done as well. So I think that's why that's what I'm trying to think of what Keo Stomach could say.
They would be simultaneously inspiring and radical and vote winning, And that's the sort of difficulty this stage, when you've got so much money in the pot.
Does S and P have a crucial role to play in this?
I hope not.
To say that they might be the king makers.
Well, I suppose that's the thing in Scotland. If we've lost enough popularity and Labor basically gets back all the votes they lost in Scotland, that's them on the path to a clear win. So hopefully the SNP's clear role
is that they lose all the to says. But if they did come out as you know, some sort of coalition part that that would be very tricky because obviously they have much more kind of radical policies that are essentially mostly about disrupting the political process down here rather than anything helpful.
And can ask about has prices John, because you came on this podcast and think it was probably perfectly tired, right, and we asked you for your prediction. It was a pretty punchy one for the dropping hat now that's we're in the middle of it now, right. House prices are falling fastest place for years. You called it, right. The survey predicts that they're going to go even further down. What's your view now on where house prices are headed?
Because that's pretty dead to everyone's heart listening to this.
I was quite surprised because we had so the question was like, do you think the peaks and the troughs and do you think it's going to go down ten percent nomenal, ten to twenty percent norminal on more than twenty percent, and most of the most of the readers actually went for between ten and twenty percent nominal, which I think is actually quite point you because I ringed thirty percent roughly, but in real terms, so inflation. So yeah,
that's kind of in the middle of those. But you know, like Bloombergy Economics thinks ten percent down nominal, A couple of dollar consultancies think about that, So I thought, actually, they're much gloomier than I expected.
How gloomy are you feel?
And that's never gloomy, it's just.
Happy roles, superpositive. Yeah, I think I think ten ten percent is phenomenal. Basically, the big sort of unknown is what's going to happen to the economy in terms of unemployment, because if you do get that pick up, and we're already started to say it, if we get that pickup in unemployment, and that's when everything starts to get wrong.
I mean, John, you've I think you've written in your newsletter about UK stocks are cheap and correspondents racking they're not cheap enough. It's this market going to keep being under battery versus it's.
Well, I mean I tend to think that what will happen is that that it will be about the Bank England anterest rates speaking. And then what it's interesting because also the markets team at Bloomberg have gradually been coming around, and you know, lots of analysts are gradually trickying and and saying, gosh, so the UK is really cheap. Even if it's terrible, it's cheap. And even if it's yeah, you get this sort of ton of their holding the
noises and going yet but that is really cheap. I kind of think that price kind of wins out eventually over time and can't any number of catalysts could come along, like you know, inflation's peaked, I mean, the footy two fifties up to day on the hope that the Bank of England is going to hold interest rates at least they're going to peak at a much lower level than
we thought two months ago. And given the governments, although everyone's still very negative on it, you know, the next parliament is going to be led hopefully either by a Labor government or a conservative government, both of whom are relatively kind of centrist in terms of policies. So I suspect the hangover from the whole listrust era will fade over the next six months.
Yeah, there's also belief in Europe filled and actually the UK is getting closer to them, so it's not quite coming back into the EU, but close enough.
I mean in terms of getting close to pause bricksit in relations with their opinion, it definitely seemed to be moving that way. I mean that it's one of the good things that Richie Senech has achieved was that the Windsor framework and then moving back with Horizon Front texts would become members of the sort of border.
Storms in Paris this week, right and then yeah, well they've resurrected this idea of concentric circles of the EU.
In twenty sixteen, they came up with this idea, which is basically that there would be a core group of Eurozone members and then you'd have these kind of rings outside of where they weren't quite as tied into the EU. And it seems that it's being re envisaged, which was always which is always a good punt, and so Labor maybe they or whoever is the next government will be able to negotiate something similar.
To that but would they get really much closer to the EU? I was interested. You know, Macaront actually invited here storm at the Eliza. I mean, it's very unusual. I've never seen like a French president invite the leader of the opposition. And I don't know whether it's a stance on Europe that also makes them feel closer.
I mean, obviously Kir Starmer has made it very clear that we're not going to renegotiate the Brexit. We're not going to sort of have enough friendum revote on the on the Brexit deal. But what we could do is basically have a much closer relationship, which was always you know, there were degrees of Brexit, weren't there There was hard breaksit soelf Brexit, no deal Brexit. There were all these ways of coming back in do we go fully back
into the customs Union in the single market? That seems a bit of a stretch, frankly, I think.
But Keir Starmer used to argue that, right, didn't he There was when it was all being debated his position was the single market option, right, it was, it was the Norway. But I mean then he flip floped on that right when it became clear that a lot of the Brexit voters didn't want to go for it. So I mean he's wobbled on this, isn't he.
Yeah, I suppose what you could say is that he moves carefully.
He's a cautious mood, not breaking down. Yeah, exactly, he was.
It was too strong to say I want Norway. But and now he's kind of edging.
Back there wheel with that, Benfaz, I mean, it's the course back to that thing and being careful and not missing things up.
And also it's not I guess it's probably not clearly people I like you said it was kind of like craw basically going back to remain whenever that seemed like a vote winner. But it's become very clear that actually put at this stage, a lot of people would much rather that Briggs. It just kind sorted itself out graduate rather than having them and spending five years arguing about
it again. And it is interesting that you kind of started talking about that because in a way that's kind of what the conversation would ideally have been in twenty sixteen after the vote. But clearly there were lots of other political factors in play, which are fair enough, you know, you can't walk out and then expect to pick and mix. But seven years, eight years later, and maybe everyone's a bit more, will you. There's a point here.
But if you want to bowld policy from labor, I mean, that would be the one to is joining.
Macron would put on the table what the rest of the EU would put on the table? That's say, any thing I wonder because obviously he's always been a bit more progressive than the members of the in terms of having relationship with you, all.
Right, and the Kings and Paris always finally going, that's exciting.
Cock.
There we go, it's happening. Thank you both for joining us.
Thank you.
Well, thanks for listening to this week's in the City. We'll be back next week.
But in the meantime, if you like our show, please do head on over to wherever you listen to podcasts and rate, review and subscribe. It helps people find the show.
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This episode was hosted by Me, David Merritt and Me from Sinlaqua. It was produced by Summersadi.
Additional editing by Blake Maples and.
Special thanks to Phil Audric and John Steppack. And be sure to check out John's newsletter, Money Distilled on bloombog dot com