Bloomberg, Bank Of England, UK discussed on Bloomberg Radio New York Show

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From you anymore We used to take our freedom of movement for granted not anymore It's not just that people will work for the airline and it's natural to feel grateful for the things that kept you going Does America have a chance to lose our advantage Can we get to herd immunity fast enough so that will be in good shape But really we were just doing our jobs Oxford University is starting a study on patients who've recovered from COVID Bloomberg radio the Bloomberg business app and Bloomberg radio dot com Bloomberg the world is listening This is Bloomberg daybreak weekend our global looking ahead at the top stories for investors in the coming week I'm John Tucker in New York up later in our program are the U.S. and China really decoupling when it comes to financial markets But first the Bank of England meets next week as the variant spreads in the UK and there are also additional restrictions now for the economy to deal with For more let's head to London and bring in Bloomberg daybreak Europa Caroline Hepburn Joan the latest twist in this long pandemic in Britain sees the variant take root and fresh restrictions so does it crucially push out an interest rate hike from the Bank of England to February or for more I'm joined by Bloomberg's senior UK economist Dan Hanson and our economy reporter Lizzie burden welcome both of you Dan to you first How likely do you think a rate rise now is for December which is just around the corner Yes So I think when the MPC sits down and looks at what the information it has and what's happened since November it all sort of have two sides of the story and one side you'll have the data and that's been extremely strong and there's definitely looks strong enough to warrant the right rise But on the other hand of course you've got the rise of omicron and the other from variant now in the UK and that's created an enormous amount of uncertainty around the outlook around the growth outlook and the inflation outlook And with the government tied to restrictions I think that's the thing that will play most heavily on the minds of policymakers and I think for us at least it's much more likely that the bank holds in December parties and weights for February when they'll have more information they'll have a new forecast and I think that's where we'll be coming to symbol 16th Yeah absolutely restrictions compliance even a question Lizzie there was a major communication issue wasn't there with the November meeting How will the Bank of England handle that come December you think Yes I think the bank would like us to forget the comes crisis that people have been complaining about But it's a completely different tone to the run up to the November meeting Part of the reason the markets are so surprised that the bank didn't hike rates in November was all the hawkish hints dropped by the governor himself So this time the NPC has been much more cautious in its messaging You've heard them talking about the decision being finely balanced the risks the economy being too sided But it's not just the way they're communicating As long as it's a fundamentally different need to miss once because of a even the most hawkish member of the military policy committee was pretty doveish He said he wants to wait for more data before raising rates So how are they handling comps It's much more cautious this month and understandably so On Bloomberg radio in the last couple of weeks Dan we've been looking at Europe at rising coronavirus cases there reporting on additional restrictions in Austria going into lockdown And mandatory vaccines in a number of European countries in the UK has been quite a different story Yeah that's right I mean that's been a bit of a change of the guard and the government as well and I think those at the top now are much more focused on keeping the recovery going I mean we'll see come January When we'll have more information about all of this whether they'll have to for the government will have to get tougher on restrictions I mean one really interesting point about the recovery and how this all plays out will be what policy response will be because a lot of big reason why I should say the recovery has been relatively swift once restrictions have been eased is that that fiscal support has been in place and we've spoken at length in the past about the impact furlough but the fact that that was there and that support network was there really made it possible for the economy to rebound And I think it's also something that's playing on the minds of the fiscal hawks in the government particularly Rishi sunak knowing how much borrowing has gone up how much fiscal space is now more limited than it was and they'll have one eye on that as well Yeah absolutely hospitality has already been crying out for additional help sort of worried About the festive period and what will happen in the depths of winter Lizzie we do have this very tight labor market too here in the UK ongoing supply chain issues How quickly do you think that inflation actually comes down in the UK in 2022 Well I'm going to borrow from down research completely here because Bloomberg economics sees price growth staying high until a second half of 2022 And it's because of the high energy prices And as you say the supply disruptions keeping going It will squeeze household income for them to dip into their savings to keep spending up And that will push the bank England to height rate But if you throw in almond coron the monetary policy committee will be trying to weigh whether it's inflationary or disinflationary because on the one hand it could hold back supply by exacerbating the factory occlusions and delay demand from shifting back from good to services They put in pressure on inflation But then on the other hand it could hold back consumer confidence in household spending So the question is whether demand is suppressed while then supplies constrained and that could come down to well this time we've got more vaccine protection So there could be less impact on consumer demand Dan we have heard in recent days from a couple of the MPC members and making some interesting comments given their usual starts That's Michael Saunders and Ben broadbent How quickly do you think stimulus will be withdrawn by the Bank of England What the bank said in November was that they thought even about a hundred basis points of tightening might be too much the economy So that would be potentially inconsistent with the inflation that CPI insulation hitting 2% in the median firm They pushed back a little bit against market pricing there So I think the bank even though they've been seen as the first mover they're potentially going to be the first mover they've been seen as very hawkish relative to other central banks I still think they're going to be pretty cautious I think going any faster than a rate hike every 6 months would be surprising So next year we think they'll do one in February and potentially one in August as well And the other thing to just take into account remember is that they're going to be moving towards not only rate hikes but when rates get to 0.5% they've said they're going to start to consider tightening So balance sheet unwind So they'll have that second second element of tightening going on as well So I think it's going to be slow I think it's going to be cautious even with inflation being very high next year as Lizzie says They'll be conscious that it's quite possible that inflation falls quite quickly in the second half of 2022 and into 2023 particularly if energy prices sort of starts fall back You could see inflation moving below target in the first half of 2023 So I think it's going to be very cautious and I say a hike at one hike fast and.

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