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Newsletter John Afternoon. So today the Chancellor Rachel Reeves. She delivered a spring forecast in the Parliament and after that speech she actually traveled in person to the Bloomberg office and spoke to our colleague Stephanie Flanders, who is the head of Government and Economics here at Bloomberg. Now we are going to listen to that interview in just a few minutes, Luckier. But John, before that, did you make
anything of the spring statement? I was there anything in there that you could even have a go at making anything of.
The one thing I will see in the Chancellor's favor is that she wanted it to be an one event and it was at no one event. She didn't make any policy change announcements, and the whole thing was entirely overshadowed by the war and Ryan, so I'd say, yes, so we could ignored it because it's.
Completely irrelevant, because any conversation about inflation or interest rates or anything like that is meaningless in the face of a possible spapulation recret.
Yes, I mean, actually it's a good lesson in the whole pointlessness of this Office for Budget Responsibility, Forecast business. Where we sat the entreat these as if they're handed down on stone tablets. And to be fair, the OBR even they said when it came out, by the way, this could swing in absolutely any direction. Now, given what's
happened in Iran. But here's something that got something an email from Berenberg earlier and they pointed out that the obr's forecasts are contingent on Brent Coruld being at sixty three dollars a barrow, which it was roughly two days ago. Now it's at eighty three a natural gas price sixty four pence a term. It's now one pound fifty a theirm. So so those numbers last. Then obviously inflation is going
to be higher. Interest rates are not going to go down the way that we'd all actually been hoping for about a week ago, and that means growth is probably going to be worse. Inflation is going to be worse. The physical headroom the Chancellor keeps going on about will not exist and things will, yes, we'll deteriorate it quite significantly, so kind of lights hope that it's all actually over within a week, which also I'm struggling to see the path there.
And if only we had a good long term domestic supply of oil and gassy.
And weird could be faith so fair and such a thing.
Now listen, I know you say how marvelous it is that it was a it was a non event. Then nothing happened, and I know that's what she wanted. But when I look at the state of the UK, I look at the state of the economy, I look at sixteen percent plus use unemployment, at all these things, I think, gosh, I don't know, maybe there's something, anything, that could be done.
And in a way, while a period of silence is in many ways welcome, a real action plan to do something about these awful effects of previous policies on the UK economy would also be kind of useful.
Yeah, I mean, the we had hopes that she may do something about the youth unemployment, if only delay in the rise in the minimum wage, for example. And who knows, I mean maybe that maybe there are things that she's planning to to. I mean that sort of feel that she was probably caught on the hop by all of this stuff and then hasn't come up with any replacement plan to tackle it. She's meant to be meeting by
oil and gas industry, for example, tomorrow. Whether she'll actually do anything about the tax problems that are stopping them from exploding in the North Sea is quite another matter. But no, you're right, there's loads of messes. I mean, part of the problem, obviously, is that Rachel Reeves has compounded She's not responsible for them directly, but she certainly made them all a lot worse with the policies that
she's pursued in her previous two budgets. So I'm not convinced that she's the one that can of fix things. But we shall see.
We shall see. Well.
On that happy note, let's get into the interview. Bloomberg Stephanie Flanders speaking with Chancellor Rachel Waves on Tuesday afternoon.
Chancellor, thank you so much for doing this. You've come over to Bloomberg headquarters straight from the Treasury on a busy.
Day, Okay, straight from the Chamber.
From the Chamber of course. Yes, you want to talk about your thoughts about the state of the UK economy and the growth plan going forward, But obviously, given everything that's happening today in markets in the Middle East, I want to start with just asking you a few questions about that. I mean, you mentioned in your speech in the Commons that you were planning to talk tomorrow to Northsea oil producers. What are you hoping to get out of that conversation?
So I said in the Chamber that some of the most affected industries I wanted to spend some time with and been in touch with over the last few days. And obviously developments in oil and gas markets are absolutely crucial for every family in every business in Britain. Now oil and gas production in the North Sea Council less than one percent of global supply of oil and gas, but it's still very important. It's important for jobs in the UK, it's important for investment, and it's important for
every family in Britain. So I'm going to be meeting with them tomorrow to talk about their production plans and also to talk about how they see the situation evolving.
Because every oil and gas company pretty much that operates in the North Sea will also operate in other parts of the world, whether that is Shell or BP or equinor or others, and so getting their insights into how oil and gas prices might evolve based on a number of different scenarios over the coming days and weeks will be very useful for me and for the government.
We can give you our scenarios as well, but our economists are looking at this as you suggest, there's nothing that our norse to oil producers could do to affect a global or price hike, it is already up significantly. If it's sustained for any period, it seems like it would be much harder to get the headline inflation rate in the UK back to two percent as you were,
as you were hoping it would be. You did a lot of things in the budget and courage shall we say, inflation to go back to two percent even by April. Has Donald Trump's wore in Iran taken that away from you?
Well, the first thing I would say is that the action that I took in the budget will still happen. So the freezing prescription charges, the freezing rail fares, and also the one hundred and fifty pounds off of energy bills that I announced in the budget will take effect next month, and so people paying families paying their gas and electricity bills do not need to worry about the next three months. That price cap is set and they will get the benefit of those policies I announced in
the budget. But of course, you know, we have to see how things evolve in terms of where oil and gas prices go going forward. But what the Office's Budget Responsibility confirmed today and what the Bank of England said when they published their most recent outlook for inflation in February was that the measures that we have taken as the government helping bring inflation back down to target much
sooner than they anticipated. I think in the OBR numbers today inflation is likely to meet target at six months earlier than they previously envisaged. Now, of course that doesn't take into accounter developments over the last few days, but also we are only just into what is happening in the Middle East. We saw each other last week, Stephanie, and we were not talking about the Middle East or around.
There was lots of other things to talk about in the economy, but this only really kicked off on Friday. So of course we're monitor developments very very closely and do everything in our power to protect businesses and families in the UK. And we are better placed to do that than we were just a few months and years ago because of the choices we've taken as the government. So what I was able to set out today in the OBR forecast is that both interest rates inflation have
been falling faster than expected. Government borrowing and debt have been revised down since the budget last year G seven borrowing is not coming down at the same rate that it is in the UK. Our public sector net borrowing, forecast to be just four point three percent this year, is the lowest in six years and the first time in twenty two years that our borrowing has been lower
than the G seven average. So welcome developments which put us in a stronger position to be able to withstand the shocks, including the shock that we are likely to be responding to in the weeks and months ahead, than we would have been without the action that we've taken as the government to secure and stabilize the public finances.
But it is vulnerable. I mean even that fall in borrowing is driven in large part actually by lower than expected spending, which is actually in turn lower spending on guilt interest, which is a result of lower inflation. So that lower path for inflation that we were on even markets were assuming for this year, that was also going
to potentially pave the way for another rate cut. You mentioned in your speech how proud you were that you've been part of the government at the Bank of England had been able to have six rate cuts since Lady King.
Was going on. There's three things that are going on to put our public finances in a better position. First of all, tax revenues have come in stronger than anticipated, and we saw that particularly in the January January borrowing numbers. It was the biggest surplus on record.
But year to date, isn't it still lower than the forecast than they abas's forecast, so that that month was very good.
But borrowing has come in lower this revelue. The borrowing has come in lower than forecast. And spending we set out the spending review last summer, many people said, well we wouldn't be really able to live within those budgets. Well, this year we have not used all of the surplus that is put aside for genuine emergencies and instead we're
able to roll that surplus forward, so spending is under control. Whereas, of course, when I became Chancellor, the reserve for the year that we were in and we were only three months into it had been spent four times over. So we haven't used a full reserve for this year. And also borrowing costs have come down. The OBR today forecast that borrowing costs next year will be four billion pounds lower than that even they thought in the budget last year.
So tax revenue coming in a bit stronger spending coming in as planned and in fact not even using the full reserve, and also borrowing costs coming down because of that additional stability we've brought to the economy. Have all contributed to the better forecast or the public finances that I was able to set out today.
But that good news, A lot of that was related to the falling guilt yields, A lot of some of that has been reversed even just today in the concerns in the markets and expectations of lower interest rates from the Bank of England, which traders in the market this week have decided again to certainly not happen in March now and where as they were expecting, and maybe not happen in the next few months.
I won't comment on market movements over a day or two. I think it is too early to know what the market impact is. Obviously, the immediate concern for the government is trying to get the three hundred thousand British citizens who are in the Middle East back home if they want to come back to the UK. Think around one hundred thousand have always already registered for the scheme to say that you are there, and that is very welcome and that's our mediate goal, as well as protecting our
personnel and our assets in the region. But of course the economic consequences of any extended military action, especially in the Middle East, which is so crucial for trade and for oil and gas, would have an impact on the UK economy, But it is too early to judge exactly what that will be and therefore what response would be needed.
I mean, I'll focus on the economy today. I'm not going to go into the government's stance in relation to the support or not for what the President's doing. But judging from Donald Trump's posts in the last and interviews in the last twenty four hours, he does seem to be not very happy with the Prime Minister as a
result of the last few days. Do you worry that that will make it harder to finalize, finally finalize the trade situation, the trade deal with the US, which was put into quite a lot of uncertainty by that Supreme Court judgment a few weeks ago.
When it comes to decisions around using British armed forces to take part in conflicts around the world, it is very important that we judge those on whether it is legal and whether it is the right thing to do. You can't make a decision about whether to get British armed forces involved in a conflict because it may or may not make it more likely to get a trade deal. And we judged that there was not a legal basis for offensive action on Iran, but of course once Iran responded, particularly.
Sorry, not a legal basis for the UK or but presumably not for the US either.
We can only make judgments for ourselves and that was the judgment that we came to based on our legal advice, and it's up to other countries to explain what action
they've taken and on what basis. But once Iran responded in the way that they did, including with missiles being launched into our allies who were not involved in the offensive action, and the risks to our military basis in Cyprus, of course it was right that we became involved in defensive action and we were involved in that from Saturday, and of course on Sunday we gave permission for US jets to use British assets from which to launch those
defensive actions. And that's a decision that we've taken as a government on trade. I'm proud of what we've done as a government, we've secured a trade deal with India, I think probably the best trade deal that any country in the world has secured with India, and we hope to be able to bring that into an effect in
the next couple of months. But in addition, improving our trade relations with our nearest neighbors and trading partners in the European Union, and I'm going to say more about our relations with the European Union in a speech I'm going to give in a couple of weeks time, because I think that that is one of the big bets that we can take as a country to change our
trajectory for productivity and growth. We've already rejoining the Erasmus scheme to allow young people to be able to study in the European Union countries and for young people in those countries to be able to study in the UK.
But we also want to deliver an energy and electricity trading deal, we want a food and farming agreement, an SPS agreement, and also we want to bring in a youth ability scheme so that young people in Britain can go and take advantage of opportunities in Europe and vice versa. Young people in the European Union can come and work
in the UK. I know that some countries around the world are looking to pull up the drawbridge, but Britain benefits from being an open trading economy, open to trade, open to investment, and also open to talent.
But for trade, it's enormously important just to have some kind of certainty about what the trade rules are. I mean, are you able to say to UK exporters to the US that you know currently what the trade rules are for going into the US, because it's not clear to us.
Well, we've secured a trade deal with the US last year on the export of goods. Since then we've gone further and secured a deal around pharmaceuticals, which is obviously crucial for the UK given the importance are of our pharmaceuticals.
As far as those things are not affected by the Supreme Court. As far as your.
Concern, obviously we are in constant negotiation and dialogue with the US administration. But there's absolutely no reason why the trade deal that we secured last year can't be maintained.
And of course there are other areas as well where we want to go further with our trade links with the US, whether that is on the future of capital markets, where we want to deepen and strengthen the capital market links between our economy, making it easier for British companies to raise finance in the US and US businesses to raise finance in London, as well as doing more in terms of mutual recognition of standards so that if you have a license for a product in the US, you
can bring it to the UK and again vice versa, to help British businesses in financial services and elsewhere to be able to launch product products in the US, which
is obviously hugely beneficial for UK firms. So there are other areas as well where we want to deepen those relations with the US, But our nearest neighbors and trading partners are countries in the EU, and the benefits from rebuilding trust between US and the European Union, and crucially those trade links in goods and our hope in services in due course is what will have the biggest impact on British businesses and jobs and living standards.
Let's talk about that sort of broader approach to growth. I know you're going to talk about also in a speech in a couple of weeks you promise that today's spring statements being forecast would be a non event so I think I can say to you succeeded in making it not very eventful. We haven't had all this kind of speculation that we had leading up to the budget, so we haven't had that uncertainty. As you've mentioned, the economic news leading up to this, at least till this
week was fairly positive. The political environment is, if anything, has deteriorated for the government, and we had a poll today that showed labor even potentially behind the Greens as well as reform. I guess I mean your economic mission, which was central to this government. A large chunk of voters. You look at the polling, are disappointed, feel that the government should have done better. Do you think that you could have done better?
People voted for change at the general election a year and a half ago, and I'm deeply aware of my responsibility and helping to deliver that change. Now since I became chancellor, wages have increased faster than inflation every single month, and the six cuts in interest rates means that if you're taking out a mortgage, a typical mortgage, you'll be saving around three hundred pounds a year than if you'd have taken that mortgage out the day before I became
Chancellor of the Exchequer. But the years leading up to that had been really tough for people. The last parliament was the first parliament ever where people were poorer on average at the end of it than they were at the start, and it takes time to unwind that legacy. We've made progress, but is there more to do? Absolutely there is, which is why I'm so focused on bringing down inflation and interest rates and returning that stability to
the economy. But the other thing that makes people's lives better is having public services that function properly, being able to get a hospital appointment or a doctor's appointment when you need it, Ensuring your kid gets into the school they want to go to and has good qualified teachers. Buses and trains that run frequently and are affordable. All of those things that we're starting to make a difference,
But there is more to do. I think that the next election, what people are going to ask is and me and my family better off? And I'm determined that
the answer to that question is yes. By ensuring that people have more money in their pockets to spend on the things that they want to spend it on, not just the essentials the mortgage, the bills, the weekly food shop, but more money to spend on the things that they actually want to do that give them pleasure in their lives and are undetermined that people have more of that. But the first thing you need to do to achieve
that is to bring stability back to the economy. And what the OBR forecasts showed today is that we have made great strides forward in returning that stability to the economy, which should pay dividends in terms of having money to spend on the priorities of working people and to make working people better off.
There was quite a lot in the forecast. I mean, there is a slightly lower growth forecast for this year, and that's due to lower net migration, which the government has obviously taken a lot of measures on. But the OBI expects it and expects that fall in net migration, the increase in the labor force and people coming in to be permanent, but that that sort of half a percent of GDP loss and GDP growth will be made up for in productivity. Will actually get more out of
the people we have working in this country. So is that the new UK growth model that we were not really welcoming people in the same way. But we want to get we hope employers get more out of British workers.
So we want to make sure that the best talent in the world comes to Britain and that's why we've extended our global Talent visas and they're available for high net worth individuals, entrepreneurs and also academics in key subjects, particularly where they bring research teams with them to the UK.
And those new global Talent visas are proving very popular and that is about us being able to have greater say about who comes into this country, and we have tightened up the rules around dependents, around students, around low skilled workers. That is the right thing to do, and we want to make sure that people who are already here have got the skills to fill the vacancies that
exist in the economy. But as I said before, I want Britain to be seen as a country that is welcome to investment, trade and and that's what those Global Talent visas do. Now the OBI have revised down their forecasts for net migration, so it's something like two hundred thousand net migration a year. That is obviously way down on the nearly a million number we had a couple
of years ago. But what matters in terms of GDP is whether that GDP is felt in people's lives, and that's why GDP per capita is probably the better measure of whether that GDP is actually impacting on your living standards. And what the OBR today say is that they're revising up GDP per capita and expect GDP per capita to increase by five point six percent during the course of this parliament. And of course in the last parliament GDP per capita actually fell and so that is a sharp
turnaround from one parliament to the next. And those numbers were revised up to day, which is very welcome because in the end, what matters is whether that GDP is being felt by you and your family, and GDP per capita is what really shows that.
Yeah, that's very striking in the numbers. I mean, if we end up, i mean the path we're on now, we could have negative net migration by the end of the year. I'm quite interested in whether that's going to be a sort of cause for celebration inside the Treasury, given the pressure on the government to reduce those numbers, or concern about how that was achieved, I mean the
things that were easiest to control. I mean students. For example, I spoke to someone at a major university last night that has been benefiting from some of the me measures. You just talked about attracting foreign academics, academics from the US, but at the same time they're losing foreign students who find it less attractive the regime here and are even
sort of worried about the environment for foreign students. So if you're undermining the business model for universities, and it doesn't matter so much that they're able to attract all these great academics.
I think we've done a lot to support universities since we came into office with increased R and D funding, and obviously a lot of that budget goes to universities to invest in basic research, and we are reintroducing maintenance grants for the poorest students to encourage them to take that leap and go to university. But we've got to
get the balance right. It has been the case that some courses at some colleges and universities, many people at the end of their course are applying for asylum in Britain and that is not what student visas were ever meant for. And so we have got to be tightening up when there is abuse. But at the same time that gives us greater freedom to introduce those high talent visas because we're freeing up space to enable us to
offer more of those. And I think that's what is most valuable to us as a country, to attract that wealth creating talent to the UK, and that is that is our ambition. At the same time, we've got to do more to make sure that young people in particular who are already in this country have got the skills and the confidence to succeed in the jobs market.
Do you worry some of our most successful sectors that we would encourage people to go into are in professional services that are potentially going to be the most transformed by AI. So do you worry that some of our most successful companies and sectors has got this massive missile headed in its direction called AI.
The industries where we are successful like professional business services, financial services, creative industries and AI and tech and life sciences. Of course, there are risks of distruction and some jobs going, but there's also massive opportunity if we seize them to get the innovation and get the research here in Britain and then build those new businesses in Britain. I am an optimist when it comes to innovation and AI. Every other wave of transformation and industrial change has resulted in
there being more jobs and better paid jobs. There's no reason why this revolution can't be the same. But we've got to make sure that people in this country have got the skills to be able to do those jobs. We're well placed, We've got some of the best universities in the world, we've got some of the best entrepreneurs in the world, and we've got a government that is backing that, for example through R and D funding. But we've got to seize that opportunity rather than being scared
a bit. And one of the things I'm going to be talking about in my Maize lecture next week is how as a government, as a country can do more to back innovation and AI, but in a way where the rewards are reaped by ordinary citizens.
I mean, as you know, Chancellor, there's a lot of people in the city, a lot of Bloomberg clients who talk about how the environment, the tax environment and elsewhere other things has changed since labor came into power, and they're all they say they're advising their children to move to Dubai. We're seeing clients move their accounts, head fund investors and others move their accounts to Dubai. Does that look like such a safe decision today when the missiles are flying?
Look, I think all of us are reading stories in the paper or hearing of of people who we know or we've worked with, who have made those decisions to move abroad. But I would say that there are lots of things that are attractive about the UK. A safe and secure economy with strong defenses, and that is one of the many things that is attractive about being in
the UK. But we only have those things because we pay for them, including investing more in our defense, which in the world that we live in today seems more important than ever.
Well, another time I'll ask you how you're going to get that three percent of GDP, But I I'm getting ushered out. So thank you very much Chancellor for joining us.
Thank you Stephanie, thanks for listening to this week's Merrin Dogs Money. If you like us, show rate review and subscribe wherever you listen to your podcast and keep sending your questions or comments to Merrin Money at Bloomberg dot net. You can also follow me and John on Twitter or x John is Really going for It on Twitter at the moment. By the way, well worth following if you don't already, I'm at Marinus w and John is John underscro Stepic. This episode was hosted by Mimes Said Webb.
It was produced by some Mesiadi and Moses and sound designed by Blake Maples.