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Bloomberg Radio New York

05:55 min | 6 months ago

"gerard lyon" Discussed on Bloomberg Radio New York

"Yeah, I mean, it's been pretty brutal, hasn't it? To be honest with you. And I think to be honest, it's quite surprising because much of what was in quieting budget had already been trailed. We knew about the CT cut, we knew about stamp duty. We knew he was toying with the idea of this basic rate cut to income tax. But I think the broader message Caroline used to sit it there with what the IFS has been talking about as well. I think it's just the tone that he came out with and the way it came across. The fact that there were no OBR forecasts, there was very little focus on fiscal sustainability. And it's just clearly really, really spooked the market and Thomas, you've mentioned that it's going to need something from both, I think, the Bank of England and the government to calm the market down. Well, we put that question to the former NPC Bank of England member Andrew sentenced just earlier this morning. He was pretty firm, he said he did not expect an emergency meeting from the Bank of England. He highlighted just how unusual that would be. Historically, will we hear from the Bank of England today or from the governor or some of the others? Or indeed from the government to try to soften the message? I think I wouldn't be as firm as that to say that won't be an emergency meeting, but I think it's a reasonable base case is that over the course of the next 24 48 hours you're going to, I think you're going to hear from the bank, Bailey's not scheduled to speak this week. I would expect him to come out and say something. I'd also expect something to come from the government as well. Because it's a two pronged approach. It's not just all you can't do something like this and expect the bank to come in and write to the rescue, the government needs to think seriously about those thought about what they want to do with tax. If they really want to cut taxes as they say they do, they need to think about spending because what worries people is borrowing. So it's the gap between the two. So they really need to think there's a fiscal strategy and what is the fiscal strategy we heard again from quoting over the weekend that's GDP going to be on a downward trajectory, but over what time horizon, when's that going to happen? And I think we've just really need to hear something on that front as well. And that's part of the critique, the Bloomberg economics critique of this of this policy mix. If we get a get a point and a markets, we touched on this pricing in a 150 basis points by the BOE by November, will debate whether that they're getting ahead of themselves on that. But clearly higher rates seem to be coming down the pipeline as consensus now. What is the drag on this economy from rates at the two year 4.4%, ten year comfort to be a 4% now? What does the economic pool of that kind of rate action from the BOE? Yeah, so it's a very give you a very, very rough guide. So every hundred basis points the bank increases interest rates. It knocks sort of .3 .4 of the level of GDP after about a year and maybe about .1 maybe .2 off the level of inflation. So it's not huge. But you have gone from the point at the beginning of this year where the idea of bank rate being at one one and a half percent was almost laughable. And now we're talking somewhere between sort of consensus economists is between four and 5% probably now. It's moving to that. The markets, you said Tom, between 5 and 6%. So you've had this massive repricing and to be honest, I think we might avoid or have a very shallow winter recession because of what the government's done through fiscal policy. I think the bigger risk now and the increasing risk is that recession hits in 2023 because the bank has had to pull so hard on the economy to bring inflation back into check. I wonder what you make of this debate, you know, the language around the UK being an emerging market than Larry summers, you know, talk about it, the UK submerging itself even further from there the pushback came from Gerard Lyon, who is also on the program on Friday and on just earlier this morning. He is both an economist and now an adviser to the prime minister, so really important voice. Sort of highly critical of U.S. economists and their view of Brexit Britain as it were. What do you make of this? I mean, I know it's only a phrase, but it's obviously one that's being attached to the UK increasingly emerging market currency. Well, selling is a high beat currency. We know that. And I think over the course of now, if you think back from 2008 to now, we've had at least two and we might be in the middle of a third enormous moves in Sterling. You head off to the financial crisis. You had about a 25% depreciation. You have Brexit, you had another ten, 15% depreciation. So we do get these big moves in the UK. And I think what worries people the most, it's that rate expectations are going up and they're going up aggressively, but it's just not providing any support for the pound and you're getting this negative correlation between Sterling and between rate differentials. And that is an emerging market dynamic. I don't think we're there yet. Definitely not. But it is a worrying sign. And the big worry, I think, the thing we haven't spoken about is this current account deficit we have in the UK as well. We rely as Mark Carney used to say on the kindness of strangers. So we've just got this reputation as being a serial borrower. And that's what spooks speak to the markets. As you say, markets pricing in a 150 basis points. And yet there is no guarantee that that would do enough to shore up the pound. And then you have to weigh up across that inflationary impact of a week about. Currently a one O 7 on Sterling, so as we touched on at the top, pairing some of the heavier losses at the start of the training session currently down 1%. Dan Hansen Bloomberg economic seen at UK economists. Thank you, as ever for the analysis. Yeah, so interesting. And perhaps that issue around can't account deficit is the thing that we can unpack next Isabel Stockton research economist said the institute for fiscal studies will be joining us about how Friday's mini budget can we still call it that will impact UK public finances and is impacting