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Welcome to the Maren Dogs Money Market Rap.
What'll we talk about the biggest moves in muggets this week and what is draving them. I'm Maren Sum's, a web editor at large for the Bloomberg UK Wealth.
And I'm joined stepping Seniors Report and author of the money This Old News Later.
Don't I John Marcus Belly moved this week. We should bother what's going on?
See you next week.
The thing is that actually, Marcus happened moved quite a lot. It's just that there's not that much that we can add to the fact that they have moved quite a lot, right up, down, all over the place.
And the only way you could really.
Say something sensible about this is if you had the faintest idea how long this new war in the Middle East would go on for and we just don't.
Yeah, And that is specifically the point, because the length of the war means the length that oil prices are elevated, and that then has the knock cooin effect of is inflation going to be actually significantly higher than everyone had thought up until a bit two weeks ago, and therefore the interest rate is higher. So it's a big deal. It's got a lot of big potential coinsequences. Unless you've litterally got across the wall, then there's no what you say, what those consequences are going.
So we can have relentless conversations about how many days worth of oil reserves every economy has, about who is the most reliant on oil from the Middle East, career in Japan by the way, and which markets therefore we should suffer the most over the long term as a result of the war dragging out or not dragging out. But in the end, it comes down to what we have absolutely no idea, and we will find out in
the fullness of time. But I suppose what we can talk about is the way in which this war and the immediate energy crunch that it has resulted in shows us the vulnerability in developed economies in general. I know you've written this week about the vulnerability and inheritance the UK economy, and it just reminds us that we're in a global economy that is fractured and that makes every problem about supply.
Yeah, I think that's a really good way to put it. I mean, we've seen this. I mean, I guess this has been coming for quite a while and people have been worried about the fracture on the supply chains. Obviously, COVID made it very obvious how vulnerable we are and how reliant we are, but unfortunately the UK we haven't really done it and about that and the energy specifically obviously is a big issue. But as Simon French podcast regular from Paner Laborom, please go back.
And listen to the podcast leader with him recently on MMT.
Yes, very interesting in particular now very timely at the moment. But the thing Simon put a piece this morning called rash Pack Britain. It kind of inspired title really, and what you're saying is that the big thing behind the UK's productivity puzzle, as in the fact that we don't seem to be getting more out of what we're doing,
is that it's not actually a puzzle at all. It's very clear what the problem is and it's because we've been rationing the supply of three big important inputs and that's energy, land and capital, so everything's more expensive than it should be. Most of this arises from yeah, you could call it well meaning I think stupid is a better word meaning yeah, yeah, exactly. It is not a good excuse for being stupid and mean.
Disappears after it's been explained to you a certain number of.
Times, exactly. So the fact that we've kind of cut off various sources of energy to ourselves, the fact that you can't you know, build a house or anything else in the country without you know, jumping through millions of hoops, and the fact that we've kind of sabitized our own capital market bike getting ready tax breaks for investing locally and keeping them for investing wherever the hell you want hasn't helped any of this. And so Simon's point is, well,
most of these things are actually reversible. You know, if you had a sensible government and power, then you could change all these things. And it's not the current government's fault. The current government has compounded it with even dafter policies and later or the rest of it. But you know this this all happened under you know, the previous kind of like the Tory government and even going back before that.
So I guess the only way that it does change is that voters start to wake up to and demand change. I mean, the North Sea oil is a good example. Rachel Reeves seems to be kind of thinking about maybe reducing the ridiculous tax rate on not soil exploration, but we're still not there yet. Just do it, Yeah, that's straightforward.
Well it's interesting.
I mean they said, didn't it today earlier this week that they're working on looking.
At way you how can it be?
How can it be? Don't need to look at ways too, You can just cut that tax, so take that tax away. Sometimes they forget they're actually in power.
I think yeah, I think they do incasingly. They all seem to not realize that this is actually their job now.
I mean, there was there was something on the radio this morning.
I can't even remember it was about, but I was listening to some ministro or the other and the interviewer said to him, well, are you going to do this particular thing?
And yes, no in parliamentary time allowing.
And I'm like, you're the government may give a parliamentary time and this is.
Another one of those things you want to do it? Want to just do that?
Yeah, And you can see why people get frustrated. I mean that was a good I mean it's a daft example, and they wouldn't draw attention in different times if it wasn't for the fact it's such a big metaphor for what's going on with our governance right now, which is that a looad. The MP's was picture taking part in some strictly come dancing things was just kind of meant to emphasis to be focused on exercise is good for you?
Good at dancing?
I'm sure, really bad, but there's an element of fedal in whale room bonds that's very oh well, And it's just regardless of whether it was actually a perfectly reasonable and sensible use of parliamentary time, there's.
Really important stuff going on and we'd like you to do that, not dancing exactly. There's a time for dancing. There's a time for doing Yeah, listen, this will come back.
That's good, that's catchy. Do you know it?
Well, yeah, we'll put it in a marketing.
This brings us back to a podcast that we did with Callum Pickering while do you remember this about a year ago, and he had a paper calder does the UK like the energy for productivity quote? And the chart was just so startling because at the time and even now, lots of people believe that the UK's productivity problem started
in two thousand and seven, two thousand and eight. So after the GFC and his work and his charts are so clearly, their productivity started to fall at the same time as the UK's electricity supplies started to decline, and that was in two thousand and five, two thousand and six, early two thousand and six. So with the fall and supply of energy came the general flatlining of our productivity.
I meant that might be the most important chart as this millennium. Yeah, because I remember your most important chart in the world just to be the Bank of England forecast of what would happen in the interestreets went by a competent Well you always that.
Three thousand years chart of just showing them, you know, being more ridiculously their relative to three thousand years worth of history. And then I went through a phase of saying, well, the most important charts in the world is now the one where it begins to tick up. Because we've got used to the idea of what happens when interest rates
are below zero or zero. We now understand the consequences that we don't understand is a constant answers of rates ticking up very sharply and moving into a new forty year interest rate cycle where they will be consistently higher than they've been in the past. And interestingly, you know, I thought that would happen really quickly. I thought the consequences of that shift in the interest rate environment would be seen in a year eighteen months or so, But
actually it's taken a lot longer. But we're seeing it now right And we're seeing it, for example, the private credit market. Lots of our colleagues will have written about that, but you're saying fund after fund after fund, saying saying pretty quite a lot of nostris in there as the private credit environment begins to see default write down, many collapses, etc.
So that's in there.
And as Edward Chancellor, another regular on the podcast, as You Ways, says, you know, super their interest rates, they get into all the cracks, and you don't know what the consequences are going to be until quite a lot later. And I think we are beginning to see some of
those consequences. And going back to neither of us knowing what an earth is going to happen with this war, One thing we do know is that even if it stops very quickly, it will still show up a little bit in CPI still make a difference to the easing cycles.
And the assumption that.
The next raatee move in the UK will be down is pretty much already done for, isn't it.
So I think the assumption that was going to be two cuts. I think that there's still assumption in the market that will one this year. But I mean that could change, that.
Could change, and there is not the real riskure staflation.
Yeah, I mean stag flesh and that would be an eight me govern that would already bottline stag fleition in the UK.
Well, we're stagnating.
It's pretty clear if you get to the point where we're muttering about, isn't it moreveless that GDP growth is going to be one point one percent? I mean this is not exciting to me. One point one percent is very very bad. And in terms of GDP ahead, well we all know where that goes.
So you know this is not good.
The UK is stagnating and it doesn't take much to shift is stagnating economy with an energy crisis into taculation, and that is what we are, stagnating, stagnating economy with an energy crisis.
Oh this is fun.
Yeah, I think one of the leaders was saying recently that were to glue me. I'm not sure what else you.
Can be a challenge and this podcast optimistically.
Hope you Christmas.
All right, that's it.
I'm going a whold of this podcast.
That's really all we can say for now, because, as I say, there's much volatility in markets, there's a lot of emotion and markets. There's a lot going on with both energy and with the whole AI conversation. We've had over and over, lots to think about, lots to talk about. Don't forget that we both write newsletters trying to analyze some of these issues, and hopefully things have become clearer over the next week.
So thank you, John, Thanks.
Mal thanks for listening to this week's Merin 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 Marinas w and John is John underscore stepic This episode was hosed by me.
Maris said where is produced by some Asadi and Moses and