December 18, 2025 • 16 mins
Your morning briefing, the business news you need in just 15 minutes.
On today's podcast:
(1) The Bank of England will likely deliver a pre-Christmas interest-rate cut on Thursday as concerns shift away from inflation and toward the UK’s struggling economy and jobs market.
(2) Central banks hike when there is a risk of inflation re-accelerating or when policy is judged to be too loose. Neither condition applies right now, tilting risks to hawkish disappointment weighing on the euro.
(3) BP appointed Meg O’Neill as its new chief executive officer, making her Big Oil’s first female leader, as the company struggles to revive its fortunes after a botched pivot toward renewable energy.
(4) OpenAI has held funding talks with investors to raise tens of billions of dollars at a valuation of $750 billion, according to a report in the Information.
(5) Chancellor Friedrich Merz said that German troops could participate in a coalition to secure a demilitarized zone in Ukraine after a possible peace agreement with Russia.
(6) Driven by a funding vacuum caused by post-financial crisis banking regulations, private credit has evolved from a relatively niche form of financing to become an important part of Europe's property lending landscape
Podcast Conversation: Where to Eat in Brussels from Business to Value
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is the.
Speaker 3 (00:10):
Bloomberg dbq AT podcast. Good morning, It's Thursday, the eighteenth
of December. I'm Caroline Hepka in London.
Speaker 1 (00:15):
And I'm Stephen Carolin Brussels. Coming up today, markets expect
a Bank of England rate reduction, but disagreement remains over
how many more cuts to expect in twenty twenty six.
Speaker 3 (00:26):
Breaking through a crude ceiling, BP names Meg O'Neil as
the first female CEO of an oil major.
Speaker 1 (00:33):
Plus private credit is giving European banks a novel way
into real estate deals, but it's causing concern for some.
Speaker 3 (00:41):
Let's start with the roundup of our top stories.
Speaker 1 (00:43):
The Bank of England will likely deliver a pre Christmas
interest rate cut today is concerns shift away from inflation
and toward the uk struggling economy. That's after data showed
consumer prices rose by a slower than expected three point
two percent in the year to November. Traders and economists
now expect the central Bank to reduce its benchmark rate
by a quarter point to three point seventy five percent.
(01:05):
That would be the lowest in three years. But Bloomberg Opinions.
Marcus Ashworth says the Central Bank has been too slow
to cut.
Speaker 4 (01:12):
I would expect probably a six to three vote to
cut by twenty five basis points that still needs in
behind the FED and my way way higher in Europe
and look missing the point here. I think inflation can
be as low as two percent. Either target could even
be by the April data, which is when all the
government revisions come in, and then we know laer point
five is coming out out of inflation dead anyway regardless,
(01:33):
but certainly by the summer. And therefore I think interest
rates are too high in the UK the.
Speaker 1 (01:38):
View of Bloomberg Opinions Marcus Ashworth. There as markets are
pricing in another cut by the end of April. Bloomberger
will have live coverage and analysis of the decision at
twelve mid day London time.
Speaker 3 (01:48):
Now, Britain's worklessness crisis maybe on the mend. Buried in
the UK employment data earlier this week, the rate of
people neither in work or looking for it has fallen
to twenty one percent. That's lower than at any point
in the twenty tens and roughly at pre pandemic levels.
Bloomberg Samuel Etienne has more on the story.
Speaker 2 (02:10):
The UK has wrestled with work in activity those neither
in work nor looking for it for a long time,
but the problem seems to be easing back down. According
to Britain's latest labor market survey. It's largely because the
cost of living is pushing people back into jobs. A
decline in early retirees and those caring for their family
is offsetting the number of people out of the workforce
(02:33):
due to long term thickness, which affects two point eight
million adults. Others point to immigration boosting the data or
suspect the UK statistics are inaccurate. In London, Samuel Etien Bloomberg.
Speaker 1 (02:46):
Radio, the European Central Bank is widely expected to keep
policy rates on hold at its meeting today. New economic
projections are likely to point to solid growth in the
euro Area, while policymakers are confident inflation won't stray excessively
from their target. That decisions at one fifteen pm UK time,
with the press conference from Christine Laguard thirty minutes later.
Sweden's Rix Bank and Norway's nor His Bank are also
(03:08):
expected to keep rates on hold in their decisions today.
Speaker 3 (03:12):
In corporate news, BP has appointed Woodside's Meg O'Neill as
its CEO, making her Big Oil's first female leader. The
shakeup at BP comes after a period of lagging behind
its rivals and pressure from activists investor Eliott Management. Blobig
Ta added Baio has more war.
Speaker 5 (03:31):
A botched pivot towards renewables, an activist investor pressure are
just some of the issues BP has faced in recent months. Now,
the business is banking on newly appointed CEO Meg O'Neill
to spearhead its turnaround plan focused on its court oil
and gas offering. According to analysts, O'Neill's engineering and operations
(03:52):
approach suggests back to basics for BP, who have faced
growing demands to exit the renewable space. Statement BP said
executive Carol Howe will step in as interim CEO, filling
in for outgoing Murray Acincloss until O'Neill's starts in April
in London.
Speaker 3 (04:09):
To You, added by Bloomberg Radio.
Speaker 1 (04:12):
Open Ai has had funding talks with investors to raise
tens of billions of dollars at a valuation of seven
hundred and fifty billion dollars. That's according to tech news
website The Information, which reported the discussions were preliminary and
subject to change. Speaking before these reports, our executive editor
for Global Technology, Peter Elstrom said, open ai is looking
for new ways to grow.
Speaker 6 (04:33):
There are a lot of deals going on in AI
right now, and open ai really is at the heart
of so many of them. So open ai has been
Samultman and open ai have been diversifying their suppliers in
a number of key areas.
Speaker 1 (04:46):
Bloomberg's Peter Elstrom was speaking as open Ai has raised
billions in recent years at ever larger valuations, including initial
talks this month with Amazon for a ten billion dollar investment.
The chattyb team maker was most recently valued at five
one hundred billion in a deal that allowed some employees
to sell shares.
Speaker 3 (05:04):
And lastly, Chancellor Friedrich Mertz says that German troops might
participate in a coalition to protect any Ukraine peace deal.
In an interview with German broadcasters ZDF, the leader floated
the idea while saying we are not there yet. The
presence of German troops on territory of the former Soviet
Union is a sensitive issue due to the atrocities committed
(05:28):
by the Nazis in the region during World War II.
Mertz's comments, coupled with Germany's record amounts of military spending,
come as European leaders meet today to try to break
a deadlock on how to use frozen Russian assets to
support Ukraine. And those are our top stories for you
this morning. In terms of the markets, Asian stocks are falling.
(05:49):
It comes after losses for US secuities in asdak fell
one point nine percent yesterday. In video shares sliding three
point eight percent, the S and P five hundred below
the fifty day moving average. President Trump talked about announcing
his FED chair pick soon. In terms of what we're expecting,
three point seventy five for the Bank of England, two
percent from the ECB, that's the expectation from the rate
(06:10):
cut decisions or rape decisions today, four point one four
percent for US Benjamin tennire treasury yields and gold near
a record high. Those are the markets.
Speaker 1 (06:20):
In a moment, we'll bring you everything you need to
know ahead of today's BOE rate decision, plus why banks
including nat West and Bartley's are teaming up with private
credit to invest in property. But first, Caroline I have
been allowed out of the radio studio I have been
a strayed from my studio where have you been, to
do a bit of reporting. I've been looking at some
(06:41):
of the best restaurants in Brussels, a terribly difficult assignment,
as you might imagine, but look, it's been a really
interesting way to get to know this city that I
only moved to this year. So I think it's a
great way to get to know anywhere is to eat
your way through it, and that's what I've been doing
my best to do. So our food editor gate Creator
commissioned me to write a five top tables piece. We've
(07:02):
talked about some of these some of the other cities
they've covered as well. But Brussels is an interesting case
because it's such a cosmopolitan place, I mean, one of
the most in the world. In fact, one hundred and
eighty six nationalities living this city as well. Of course
you get cuisine from all over Europe but further afield
as well, so I picked out some I went kind
of old and new to some new openings. Also one
of the kind of old traditional dining rooms in the
(07:24):
city as well. But also can't do this sort of
story without talking about obviously the frit traditional Brussels, you know,
necessity and the one I picked is Maison Entoine, which
is not very far from the European Quarter here. It's
actually Angler Merkel once popped down there in the middle
of a summit for such a few woid didn't it.
I was so excitly for a little kind of cup
(07:48):
of chips as well. My favorite part about it is
actually you can on the square. It's a takeaway stand,
but you can take the chips and sit and on
one of the bars terraces if you order a drink
as well, and have some tips there too. And there
are thirty difference asks us to try and working my
way slowly through them.
Speaker 3 (08:03):
I love that story. Yes, good stuff. I'm glad that
you're getting to know Brussels and enjoying it and as
you say, easing your way through the city. Marvelous. And
you can of course read the story on the Bloemberg
Tunnel if you have to happen to be going through Brussels.
We're going to put a link to it in our
show notes.
Speaker 1 (08:20):
Well, let's discuss the Bank of England rate decision today.
After the slowdown and inflation in November, Guilty Hals have
dropped across the curve of Bloomberg's chief UK economist Dan
Hanson has been telling us what to expect from the
Bank of England today.
Speaker 7 (08:32):
So I think it's it's pretty nailed on that they're
going to cut interest rates. We've obviously had a lot
of data this week, and I think the backdrop for
this decision is what Andrew Bailey said at the November decision,
which is that he was looking for more evidence that
the disinflation trend in the economy was on the right
track and inflation was going to come down. And I
(08:53):
think we've had that this week. We've had the unemployment
rate going up way to grow slowing, and we've obviously
had inflation slowings and expected as well. So you take
those three things together and I think the cut is
pretty much nailed on. Where are the uncertainties about this, Well,
the first is how many votes do we get for
a cut. Is it just Andrew Bailey that swings from
(09:14):
being the voter that goes from a hold in November
to a cut in December, or do we get more
of the hawkish camp on the NPC moving across. And
the second thing is around how they characterize their view
of where things will be going forward. So that's the guidance.
So you know, do they sit with gradual cuts. I
(09:34):
think they probably will, but they're the tea things to
look at, and they're the two uncertainties.
Speaker 1 (09:38):
I think, what sort of trajectory do we have from
the data running up to this point now in terms
of the slowdown and inflation and weight growth. What does
that indicate at least about where the monk could go
next year. That's an interesting one because you have what
they'll have to take accounts of as well when it
comes at least to inflation is what the chances are
(09:59):
announced in budget and that means inflation though the policies
announced in the budget will mean that inflation drops quite
sharply lot next year.
Speaker 3 (10:07):
Headline inflation.
Speaker 7 (10:08):
We think by April you could be pretty close to
two percent on a headline basis, and obviously that's the
Bank of England's target, so clearly good news. I think
what the Bank's going to be focused on though is
what you mentioned there, which is the path of pay growth.
We've come down below four percent, which is obviously if
you're an inflation targeting central bank, good news less good
(10:28):
news if you're a if you're a household or someone
in the labor force, and we think over the course
of next year, pay growth should should come down further
to around three percent, which is the level the Bank
of England needs it to be at for inflation to
consistently hit two percent. I think the challenge to that
argument is that if you look at forward looking indicators,
(10:51):
they seem to be bottoming out at about for pay growth,
this is, they seem to be bottoming out at about
three three and a half three and a half to
four percent, So there is a question mark about whether
we get that final push to that level. And then
to go to answer your question about rates, I think
there's room for at least one more rate cut next year.
That's our baseline, so that's the three and a half percent,
(11:13):
But I think rates ending the year next year somewhere
between three and three and a half percent is a
very reasonable expectation. I think you'd have to see the
economy we can quite substantially for them to go below
that level.
Speaker 3 (11:24):
With taxes here in the UK going up and the
labor market, as you have said, clearly slowing down. Is
this likely interest rate cut from the Bank of England
a gift for the Prime Minister kist Arma and the
Chancellor Rachel Reeves. How should we see it if we
mix in some politics to your economic analysis.
Speaker 7 (11:45):
Yeah, I mean the obviously, if you're going to be
you know, if you're if you're in the government, you're
going to be banging the drum about this and the
fact that you've sort of facilitated this happening. If you're
sort of being a sort of cold and dry economistic
economic analysis, I think you'd say that the Bank of
England could have cut faster this year had the policies
in the budget in twenty twenty four not been Many
(12:08):
of the policies in the budget in twenty twenty four
made inflation run hotter this year than many were expecting.
So look, I think if I'm going to mix the
two things, it's obviously it's obviously a gift for the Chancellor,
for the government.
Speaker 3 (12:20):
You know.
Speaker 7 (12:20):
The hope is, of course, is that the bank hasn't
sat on the economy too hard and it then ends
up having to play catch up because the bank it
will go from quite quickly go from the bank, you know,
handing out Christmas gifts to the government blaming the Bank
of England for generating a downturn in the economy as
it was trying to bring inflation back to target. But
you know, there's no doubt this year, at least the
(12:43):
bank's job has been made harder by the government's actions.
Speaker 3 (12:45):
That's totally if.
Speaker 1 (12:46):
UK economist Dan Hansen and the Bank of England announced
that decision at midday today.
Speaker 3 (12:51):
Stay with us.
Speaker 1 (12:52):
More from Bloomberg Daybreak Europe coming up after this Now.
Speaker 3 (12:56):
Banks are teaming up with that private credit to f
and ans commercial real estate deals in Europe, but the
increasingly popular form of financing is raising concerns that creditor
protections are being eroded. Joining us now is our European
commercial real estate reported Natasha Vos. Good to see you, Natasha.
This kind of financing, it's known as back leverage. Just
(13:18):
explain how it works and why it's become so popular,
Yeah sure, I mean.
Speaker 8 (13:22):
Put simply, back leverage is basically a situation where a
bank lends to a debt fund, which then lends to
an underlying borer who in this case owns real estate.
And it's become quite popular in the UK and in Europe,
following on from the US because post financial crisis, it
became more expensive for banks to lend to commercial real estate.
But what this allows them to do is to lend
(13:44):
to a commercial real estate classified as a securitization, and
then they benefit from lower capital charges. And then it's
increased among the debt funds because for them it enables
them to compete more on loan pricing while also achieving
their returns.
Speaker 1 (14:00):
So how has back leverage then changed the market?
Speaker 8 (14:04):
Yeah, I mean it's become more competitive in both markets.
So the back leverage market itself has gotten more competitive
as more and more banks have started to lend this way.
But then also for the underlying borrowers, what allows them
to do is to lend more because they've got more
firepower in their funds while also having potentially lower pricing
and making the same returns. And that's so for the
(14:26):
underlying borrowers in many ways, there's good news. You know,
there's more liquidity.
Speaker 3 (14:31):
But then perhaps also that raises some concerns about the
kind of increased use of this. What are the ramifications
what have you been reporting on?
Speaker 8 (14:39):
Yeah, and I mean in theory, it is a more
secure form of lending, at least for the banks because
they're in a more senior position, you know, so their
last loss. But then one of the what's on of
the concerns have been that the increase in liquidity, the
increased competition, because there are relatively few deals to finance
and debt re estate debt in the moment, that increased
liquidity and competition could then lead banks to drop their
(15:01):
underwriting standards for the back leverage, and also for the
debt funds to drop their underwriting standards, which in good
times might not necessarily be a problem, but you know,
if there's a market shock, you could see the consequences
further down the line.
Speaker 1 (15:13):
And this is something that's gotten some of the biggest
names in banking in Europe involved in it as well.
Can you give us some examples of who has been
using this sort of leverage and perhaps some of the
projects they've been using it for.
Speaker 3 (15:24):
Yeah, sure.
Speaker 8 (15:25):
So, for example, we reported that Gold and Sachs had
provided back leverage to PGM to finance the other house
in Covent Garden. Another one is Netwest providing Cheney with
back leverage for an office development just in the city.
It's seventy five London walls. It's the former Deutsche Bank headquarters.
I mean it's become pretty popular for banks and also
for debt funds.
Speaker 1 (15:47):
This is Bloomberg Daybreak Europe, your morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 3 (15:54):
Look for us on your podcast feed every morning, on Apple, Spotify,
and anywhere else you get your podcasts.
Speaker 1 (16:00):
You can also listen live each morning on London DAB Radio,
the Bloomberg Business app, and Bloomberg dot Com.
Speaker 3 (16:06):
Our flagship New York station is also available on your
Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty.
I'm Caroline Hepka and.
Speaker 1 (16:15):
I'm Stephen Carol. Join us again tomorrow morning for all
the news you need to start your day right here
on Bloomberg Daybreak Europe
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is the.
Speaker 3 (00:10):
Bloomberg dbq AT podcast. Good morning, It's Thursday, the eighteenth
of December. I'm Caroline Hepka in London.
Speaker 1 (00:15):
And I'm Stephen Carolin Brussels. Coming up today, markets expect
a Bank of England rate reduction, but disagreement remains over
how many more cuts to expect in twenty twenty six.
Speaker 3 (00:26):
Breaking through a crude ceiling, BP names Meg O'Neil as
the first female CEO of an oil major.
Speaker 1 (00:33):
Plus private credit is giving European banks a novel way
into real estate deals, but it's causing concern for some.
Speaker 3 (00:41):
Let's start with the roundup of our top stories.
Speaker 1 (00:43):
The Bank of England will likely deliver a pre Christmas
interest rate cut today is concerns shift away from inflation
and toward the uk struggling economy. That's after data showed
consumer prices rose by a slower than expected three point
two percent in the year to November. Traders and economists
now expect the central Bank to reduce its benchmark rate
by a quarter point to three point seventy five percent.
(01:05):
That would be the lowest in three years. But Bloomberg Opinions.
Marcus Ashworth says the Central Bank has been too slow
to cut.
Speaker 4 (01:12):
I would expect probably a six to three vote to
cut by twenty five basis points that still needs in
behind the FED and my way way higher in Europe
and look missing the point here. I think inflation can
be as low as two percent. Either target could even
be by the April data, which is when all the
government revisions come in, and then we know laer point
five is coming out out of inflation dead anyway regardless,
(01:33):
but certainly by the summer. And therefore I think interest
rates are too high in the UK the.
Speaker 1 (01:38):
View of Bloomberg Opinions Marcus Ashworth. There as markets are
pricing in another cut by the end of April. Bloomberger
will have live coverage and analysis of the decision at
twelve mid day London time.
Speaker 3 (01:48):
Now, Britain's worklessness crisis maybe on the mend. Buried in
the UK employment data earlier this week, the rate of
people neither in work or looking for it has fallen
to twenty one percent. That's lower than at any point
in the twenty tens and roughly at pre pandemic levels.
Bloomberg Samuel Etienne has more on the story.
Speaker 2 (02:10):
The UK has wrestled with work in activity those neither
in work nor looking for it for a long time,
but the problem seems to be easing back down. According
to Britain's latest labor market survey. It's largely because the
cost of living is pushing people back into jobs. A
decline in early retirees and those caring for their family
is offsetting the number of people out of the workforce
(02:33):
due to long term thickness, which affects two point eight
million adults. Others point to immigration boosting the data or
suspect the UK statistics are inaccurate. In London, Samuel Etien Bloomberg.
Speaker 1 (02:46):
Radio, the European Central Bank is widely expected to keep
policy rates on hold at its meeting today. New economic
projections are likely to point to solid growth in the
euro Area, while policymakers are confident inflation won't stray excessively
from their target. That decisions at one fifteen pm UK time,
with the press conference from Christine Laguard thirty minutes later.
Sweden's Rix Bank and Norway's nor His Bank are also
(03:08):
expected to keep rates on hold in their decisions today.
Speaker 3 (03:12):
In corporate news, BP has appointed Woodside's Meg O'Neill as
its CEO, making her Big Oil's first female leader. The
shakeup at BP comes after a period of lagging behind
its rivals and pressure from activists investor Eliott Management. Blobig
Ta added Baio has more war.
Speaker 5 (03:31):
A botched pivot towards renewables, an activist investor pressure are
just some of the issues BP has faced in recent months. Now,
the business is banking on newly appointed CEO Meg O'Neill
to spearhead its turnaround plan focused on its court oil
and gas offering. According to analysts, O'Neill's engineering and operations
(03:52):
approach suggests back to basics for BP, who have faced
growing demands to exit the renewable space. Statement BP said
executive Carol Howe will step in as interim CEO, filling
in for outgoing Murray Acincloss until O'Neill's starts in April
in London.
Speaker 3 (04:09):
To You, added by Bloomberg Radio.
Speaker 1 (04:12):
Open Ai has had funding talks with investors to raise
tens of billions of dollars at a valuation of seven
hundred and fifty billion dollars. That's according to tech news
website The Information, which reported the discussions were preliminary and
subject to change. Speaking before these reports, our executive editor
for Global Technology, Peter Elstrom said, open ai is looking
for new ways to grow.
Speaker 6 (04:33):
There are a lot of deals going on in AI
right now, and open ai really is at the heart
of so many of them. So open ai has been
Samultman and open ai have been diversifying their suppliers in
a number of key areas.
Speaker 1 (04:46):
Bloomberg's Peter Elstrom was speaking as open Ai has raised
billions in recent years at ever larger valuations, including initial
talks this month with Amazon for a ten billion dollar investment.
The chattyb team maker was most recently valued at five
one hundred billion in a deal that allowed some employees
to sell shares.
Speaker 3 (05:04):
And lastly, Chancellor Friedrich Mertz says that German troops might
participate in a coalition to protect any Ukraine peace deal.
In an interview with German broadcasters ZDF, the leader floated
the idea while saying we are not there yet. The
presence of German troops on territory of the former Soviet
Union is a sensitive issue due to the atrocities committed
(05:28):
by the Nazis in the region during World War II.
Mertz's comments, coupled with Germany's record amounts of military spending,
come as European leaders meet today to try to break
a deadlock on how to use frozen Russian assets to
support Ukraine. And those are our top stories for you
this morning. In terms of the markets, Asian stocks are falling.
(05:49):
It comes after losses for US secuities in asdak fell
one point nine percent yesterday. In video shares sliding three
point eight percent, the S and P five hundred below
the fifty day moving average. President Trump talked about announcing
his FED chair pick soon. In terms of what we're expecting,
three point seventy five for the Bank of England, two
percent from the ECB, that's the expectation from the rate
(06:10):
cut decisions or rape decisions today, four point one four
percent for US Benjamin tennire treasury yields and gold near
a record high. Those are the markets.
Speaker 1 (06:20):
In a moment, we'll bring you everything you need to
know ahead of today's BOE rate decision, plus why banks
including nat West and Bartley's are teaming up with private
credit to invest in property. But first, Caroline I have
been allowed out of the radio studio I have been
a strayed from my studio where have you been, to
do a bit of reporting. I've been looking at some
(06:41):
of the best restaurants in Brussels, a terribly difficult assignment,
as you might imagine, but look, it's been a really
interesting way to get to know this city that I
only moved to this year. So I think it's a
great way to get to know anywhere is to eat
your way through it, and that's what I've been doing
my best to do. So our food editor gate Creator
commissioned me to write a five top tables piece. We've
(07:02):
talked about some of these some of the other cities
they've covered as well. But Brussels is an interesting case
because it's such a cosmopolitan place, I mean, one of
the most in the world. In fact, one hundred and
eighty six nationalities living this city as well. Of course
you get cuisine from all over Europe but further afield
as well, so I picked out some I went kind
of old and new to some new openings. Also one
of the kind of old traditional dining rooms in the
(07:24):
city as well. But also can't do this sort of
story without talking about obviously the frit traditional Brussels, you know,
necessity and the one I picked is Maison Entoine, which
is not very far from the European Quarter here. It's
actually Angler Merkel once popped down there in the middle
of a summit for such a few woid didn't it.
I was so excitly for a little kind of cup
(07:48):
of chips as well. My favorite part about it is
actually you can on the square. It's a takeaway stand,
but you can take the chips and sit and on
one of the bars terraces if you order a drink
as well, and have some tips there too. And there
are thirty difference asks us to try and working my
way slowly through them.
Speaker 3 (08:03):
I love that story. Yes, good stuff. I'm glad that
you're getting to know Brussels and enjoying it and as
you say, easing your way through the city. Marvelous. And
you can of course read the story on the Bloemberg
Tunnel if you have to happen to be going through Brussels.
We're going to put a link to it in our
show notes.
Speaker 1 (08:20):
Well, let's discuss the Bank of England rate decision today.
After the slowdown and inflation in November, Guilty Hals have
dropped across the curve of Bloomberg's chief UK economist Dan
Hanson has been telling us what to expect from the
Bank of England today.
Speaker 7 (08:32):
So I think it's it's pretty nailed on that they're
going to cut interest rates. We've obviously had a lot
of data this week, and I think the backdrop for
this decision is what Andrew Bailey said at the November decision,
which is that he was looking for more evidence that
the disinflation trend in the economy was on the right
track and inflation was going to come down. And I
(08:53):
think we've had that this week. We've had the unemployment
rate going up way to grow slowing, and we've obviously
had inflation slowings and expected as well. So you take
those three things together and I think the cut is
pretty much nailed on. Where are the uncertainties about this, Well,
the first is how many votes do we get for
a cut. Is it just Andrew Bailey that swings from
(09:14):
being the voter that goes from a hold in November
to a cut in December, or do we get more
of the hawkish camp on the NPC moving across. And
the second thing is around how they characterize their view
of where things will be going forward. So that's the guidance.
So you know, do they sit with gradual cuts. I
(09:34):
think they probably will, but they're the tea things to
look at, and they're the two uncertainties.
Speaker 1 (09:38):
I think, what sort of trajectory do we have from
the data running up to this point now in terms
of the slowdown and inflation and weight growth. What does
that indicate at least about where the monk could go
next year. That's an interesting one because you have what
they'll have to take accounts of as well when it
comes at least to inflation is what the chances are
(09:59):
announced in budget and that means inflation though the policies
announced in the budget will mean that inflation drops quite
sharply lot next year.
Speaker 3 (10:07):
Headline inflation.
Speaker 7 (10:08):
We think by April you could be pretty close to
two percent on a headline basis, and obviously that's the
Bank of England's target, so clearly good news. I think
what the Bank's going to be focused on though is
what you mentioned there, which is the path of pay growth.
We've come down below four percent, which is obviously if
you're an inflation targeting central bank, good news less good
(10:28):
news if you're a if you're a household or someone
in the labor force, and we think over the course
of next year, pay growth should should come down further
to around three percent, which is the level the Bank
of England needs it to be at for inflation to
consistently hit two percent. I think the challenge to that
argument is that if you look at forward looking indicators,
(10:51):
they seem to be bottoming out at about for pay growth,
this is, they seem to be bottoming out at about
three three and a half three and a half to
four percent, So there is a question mark about whether
we get that final push to that level. And then
to go to answer your question about rates, I think
there's room for at least one more rate cut next year.
That's our baseline, so that's the three and a half percent,
(11:13):
But I think rates ending the year next year somewhere
between three and three and a half percent is a
very reasonable expectation. I think you'd have to see the
economy we can quite substantially for them to go below
that level.
Speaker 3 (11:24):
With taxes here in the UK going up and the
labor market, as you have said, clearly slowing down. Is
this likely interest rate cut from the Bank of England
a gift for the Prime Minister kist Arma and the
Chancellor Rachel Reeves. How should we see it if we
mix in some politics to your economic analysis.
Speaker 7 (11:45):
Yeah, I mean the obviously, if you're going to be
you know, if you're if you're in the government, you're
going to be banging the drum about this and the
fact that you've sort of facilitated this happening. If you're
sort of being a sort of cold and dry economistic
economic analysis, I think you'd say that the Bank of
England could have cut faster this year had the policies
in the budget in twenty twenty four not been Many
(12:08):
of the policies in the budget in twenty twenty four
made inflation run hotter this year than many were expecting.
So look, I think if I'm going to mix the
two things, it's obviously it's obviously a gift for the Chancellor,
for the government.
Speaker 3 (12:20):
You know.
Speaker 7 (12:20):
The hope is, of course, is that the bank hasn't
sat on the economy too hard and it then ends
up having to play catch up because the bank it
will go from quite quickly go from the bank, you know,
handing out Christmas gifts to the government blaming the Bank
of England for generating a downturn in the economy as
it was trying to bring inflation back to target. But
you know, there's no doubt this year, at least the
(12:43):
bank's job has been made harder by the government's actions.
Speaker 3 (12:45):
That's totally if.
Speaker 1 (12:46):
UK economist Dan Hansen and the Bank of England announced
that decision at midday today.
Speaker 3 (12:51):
Stay with us.
Speaker 1 (12:52):
More from Bloomberg Daybreak Europe coming up after this Now.
Speaker 3 (12:56):
Banks are teaming up with that private credit to f
and ans commercial real estate deals in Europe, but the
increasingly popular form of financing is raising concerns that creditor
protections are being eroded. Joining us now is our European
commercial real estate reported Natasha Vos. Good to see you, Natasha.
This kind of financing, it's known as back leverage. Just
(13:18):
explain how it works and why it's become so popular,
Yeah sure, I mean.
Speaker 8 (13:22):
Put simply, back leverage is basically a situation where a
bank lends to a debt fund, which then lends to
an underlying borer who in this case owns real estate.
And it's become quite popular in the UK and in Europe,
following on from the US because post financial crisis, it
became more expensive for banks to lend to commercial real estate.
But what this allows them to do is to lend
(13:44):
to a commercial real estate classified as a securitization, and
then they benefit from lower capital charges. And then it's
increased among the debt funds because for them it enables
them to compete more on loan pricing while also achieving
their returns.
Speaker 1 (14:00):
So how has back leverage then changed the market?
Speaker 8 (14:04):
Yeah, I mean it's become more competitive in both markets.
So the back leverage market itself has gotten more competitive
as more and more banks have started to lend this way.
But then also for the underlying borrowers, what allows them
to do is to lend more because they've got more
firepower in their funds while also having potentially lower pricing
and making the same returns. And that's so for the
(14:26):
underlying borrowers in many ways, there's good news. You know,
there's more liquidity.
Speaker 3 (14:31):
But then perhaps also that raises some concerns about the
kind of increased use of this. What are the ramifications
what have you been reporting on?
Speaker 8 (14:39):
Yeah, and I mean in theory, it is a more
secure form of lending, at least for the banks because
they're in a more senior position, you know, so their
last loss. But then one of the what's on of
the concerns have been that the increase in liquidity, the
increased competition, because there are relatively few deals to finance
and debt re estate debt in the moment, that increased
liquidity and competition could then lead banks to drop their
(15:01):
underwriting standards for the back leverage, and also for the
debt funds to drop their underwriting standards, which in good
times might not necessarily be a problem, but you know,
if there's a market shock, you could see the consequences
further down the line.
Speaker 1 (15:13):
And this is something that's gotten some of the biggest
names in banking in Europe involved in it as well.
Can you give us some examples of who has been
using this sort of leverage and perhaps some of the
projects they've been using it for.
Speaker 3 (15:24):
Yeah, sure.
Speaker 8 (15:25):
So, for example, we reported that Gold and Sachs had
provided back leverage to PGM to finance the other house
in Covent Garden. Another one is Netwest providing Cheney with
back leverage for an office development just in the city.
It's seventy five London walls. It's the former Deutsche Bank headquarters.
I mean it's become pretty popular for banks and also
for debt funds.
Speaker 1 (15:47):
This is Bloomberg Daybreak Europe, your morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 3 (15:54):
Look for us on your podcast feed every morning, on Apple, Spotify,
and anywhere else you get your podcasts.
Speaker 1 (16:00):
You can also listen live each morning on London DAB Radio,
the Bloomberg Business app, and Bloomberg dot Com.
Speaker 3 (16:06):
Our flagship New York station is also available on your
Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty.
I'm Caroline Hepka and.
Speaker 1 (16:15):
I'm Stephen Carol. Join us again tomorrow morning for all
the news you need to start your day right here
on Bloomberg Daybreak Europe
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