UK, Rupert Harrison, Blackrock Mark T Asset Strategies discussed on Bloomberg Daybreak Europe


Thanks, Tom. Now it is 9 50 a.m. here in London, so we have time for one more markets conversation with us and joining us now Rupert Harrison portfolio manager at BlackRock Mark T asset strategies. Also a former chief of staff for the former UK Chancellor George Osborne. You've also been a senior research economist at the IFS just to give you a whole CV. Thank you so much for being with us. You on TV just a moment ago. With barely 6 weeks into a new government in the UK is in crisis. If we get a reversal of the mini budget, how much does that help guilt and Sterling, how much does it restore Britain's credibility on the world stage? Well, look, it clearly is going to continue to help guilt. I think Sterling is, as you see this morning, kind of driven a bit by the dollar moves as well, but it should continue to support Sterling a little bit. I think we have now probably more than 50% probability of this U turn is now already priced in so I think the biggest part of the move may be behind us, but probably more to come if we do get that U turn as expected, possibly Monday, early next week. I don't think it completely removes all questions about UK policy. I think markets will still look forward to 31st of October. But I think it probably does buy the government enough time. And I think the interesting thing as well is you could see a switch from this sort of negative dynamic in gilt markets where rising yields force more selling to a sort of milder version, but in reverse where falling yields force more bike because I think there are going to be some funds out there that are probably under hedged underexposed and they're going to be people buying into a rising market. Yeah, three 99 on the ten year might look attractive to some of those funds on the ten year guilt. Yeah, exactly. I think there's a combination of probably of faster money looking for momentum, but also just sort of structural pressures within the system where there needs to be a bit of buying because they're probably some of the selling was a bit overdone. Andrew sentenced earlier telling us that there is going to be volatility leading up to the OBR doing the homework and checking the homework of the treasury, presumably you expect the same thing. I just wonder to what extent you think this is a longer term damage to the credibility. And again, UK assets. Yeah, look, I think there is going to be a risk premium for some time now in UK assets because I think some vulnerabilities have been exposed. I think there's an uncertainty premium now. I think the government can go a long way towards starting to reduce that by rowing back in behind the institutions behind the Bank of England behind the OBR. And crucially by setting out a plan on the 31st October that is seen as credible. I think in a sense that the test for this that markets are looking for is you want the sort of row after the publication of that plan to be a kind of conventional political row. Is it spending tax rises rather than a row about the feasibility and credibility of the measures themselves? Yeah, absolutely. And sentence also talked about the idea that you could just sort of snap snap and you'd get two and a half percent economic growth in the UK as being unrealistic was his view. But growth, the UK, I mean, are you a buyer that the UK does need to push up its growth, a substantially. What if any of just economics does that and what remains of the policy? No, I'm absolutely a bio that you need to keep pushing at structural reform in the UK to improve the way markets function, to improve skills, to improve infrastructure, to I think some of the issues around the planning system absolutely correct. But the realistic outlook is that it takes a long time for structural policy to have an impact on trend growth. I think it's possible, but it takes patient, consistent policy over a long period of time, and then you need to be realistic about the impact it's going to have. And I think that the crucially for forecasters like the OBR and for markets, this issue around structural growth has to be shown not tell. I think people are going to wait to see the evidence. They're not going to assume that results until they see them. There is this irony that when you work with jaws also on the course of the chance of these checker in the UK, you pursue what George Osborne pursued austerity at a time when in fact rates were very, very low and arguably you could have spent quite comfortably. And now we're at a point where the government is planning and wants to spend very heavily at a time when rates are much higher. I just want to take you back to that time working with George Osborne and get your views on how much of that work around trying to shore up the finances of the UK, which of course was the purpose of that. How much of that on work has been undone? Well, look, I think the issue is that when you're thinking about fiscal credibility and public finances, you need to take a very, very long term view. Because you can't turn these things around quickly, that's what we're seeing. And so back in the 2010s and that period where the UK had a very, very high deficit. The whole point was, look, we face vulnerabilities down the track. We can't be certain when they will come, but they will come. The UK has vulnerabilities about a current account deficit. It's very dependent on external financing. It had vulnerabilities in the banking system. We don't have a global reserve currency. These are all reasons to take a long-term view and say the UK can never take credibility for granted. You

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