May 8, 2025 • 19 mins
It's been a whirlwind week for UK trade — first a deal with India, and now, a surprise announcement: a US-UK trade agreement. With aims to reduce trade barriers and increase market access for American imports and industrial exports, this latest deal sets the stage for closer economic ties between the two countries.
Hosts David Merritt and Francine Lacqua speak with Dan Hanson from Bloomberg Economics to unpack the US-UK trade deal and what it could mean for the UK's broader economic outlook.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Welcome to in the City.
Each week we unpack a story that's crucial to the
world's financial capitals.
Speaker 2 (00:22):
I'm Francin Laqua and I'm David Merritt.
Speaker 1 (00:25):
So David's fair to say it's been a world one week,
actually a world one day for UK trade on Thursday,
first to deal with India and now a surprise announcement
US UK trade agreement.
Speaker 2 (00:33):
Absolutely, and you know we're taping this just as the
press conference has been going on from the Oval Office.
We've been watching Trump Star has been down the line
on the phone. The new United States Ambassador Peter Mandelson
is standing there looking very smart and please behind hat Howard.
Luckily the comment section has been talking, so this is
unfolding real time. The details of this, aount of this
(00:54):
trade deal is coming. And of course the US UK
trade deal has been long been the prize, isn't it.
British coverments ever since Brexit have been after has it
now actually come to pass? Yeah?
Speaker 1 (01:05):
And I think the good news for markets broadly is
that the pact is probably seen as a potential blueprint
for other trade deals. So there seems to be a
little bit of efforvens in saying, look, this is the
first one. We may get more deals, but then is
it really a trade deal or is it more like
an economic deal? Is it? I give you this, I
give for that, but it's not maybe the all encompassing
trade deal that the word suggests.
Speaker 2 (01:26):
And you know, we're pouring through the details obviously, and
I imagine there's going to be a lot of this
in the press in the coming days, so we're going
to have sort of zoom a bit out of this
and think, you know, what is the significance of this deal?
It is a coup. You know, we have to admit
here for the prime mini stuff for Costama, he's he's
the first country to land an agreement in your agreement
(01:47):
since Liberation Day, since Trump's Liberation Day sent markets central
teilspin And as you mentioned, Francine, this comes just a
few days after really a landmark deal between Britain and
India as well, which has been long in the making too.
So Britain suddenly kind of at the vanguard of global
trade or at least new new trade agreements. Who'd have
thought it?
Speaker 1 (02:07):
Who would have thought it? So we'll try and unpack
what it means for the broader economic outlook to unpack.
The latest updates were joined by Dan Hansen from Bloomberg Economics.
Speaker 2 (02:15):
Welcome to the City of London, the city of the city.
Speaker 3 (02:18):
The City of London.
Speaker 1 (02:21):
Then we need mind the gap between.
Speaker 2 (02:24):
The trade and the pafor the financial hearts of the country,
the city, the city. Welcome to in the city, stand
clear of the door.
Speaker 1 (02:40):
Pease, thank you so much for joining us. Not to
take anything away from the government, because you know they
are the first and actually means that they dealt with
it in a good way for what they needed. But
is this a big trade deal or is this coming
closer together after Liberation Day?
Speaker 3 (02:59):
I think it's this. I mean it's almost certainly the
second one, isn't it. Right, So you've got if you
think about the what's been or the sort of as
we get the drip feed of news, what we're hearing,
you know, tariffs are still going to be higher on
UK exports going to the US in a world where
we were talking about a US FTA prior to Liberation Day,
we were talking about tariffs on both sides going down,
(03:21):
possibly in trade barriers going down to possibly close to zero.
So that's what a free trade agreement would be. This
is about mitigating the cost of the tariffs. Obviously the
US has got something out of it on their side
as well, but I think from the UK perspective, we're
going from a world where, based on our calculations, at
least you had an increase in the tariff rate on
(03:43):
UK exports going to the US of about ten percentage points.
Based on what we've heard today, it will now be
a rise of about seven percentage points. So maybe a
third of the impact of the tariffs on Liberation Day
have been mitigated the direct impact. So it's a step
in the right direction. There are a lot of positive noises.
There's there's an interesting bit from the UK government's press
(04:04):
release about what will happen around Farmer, which is a
really bit important part of UK trade with the US,
and that the UK will get preferential treatment. Obviously Trump
hasn't made a decision about what he's going to do
with Farmer yet, but if the UK avoids those tariffs,
that'll be really important. So you know, it's a really
important step. We haven't got a huge amount of detail,
(04:25):
but it feels like we're taking a step. But we
sort of moved on Liberation Day. We've taken a step back,
but we haven't gone sort of back to pre Liberation Day,
a pre Liberation day world, if you like.
Speaker 2 (04:35):
So we're clawing back a bit of the damage that
was going to be done to the British economy by
the actions that the President took last month. But we're
not in the land of you know, the sunner uplands.
Remember those after Brexit that we were going to have
this big and beautiful trade deal with the United States
that was actually going to prove perhaps why Britain is
better off outside the EU, for instance. But we're not
(04:59):
in that.
Speaker 3 (04:59):
Sort of ter So we're not in that territory. And
I think you're absolutely right. I mean, interestingly, Trump tauted
Brexit in the in the press conference, didn't he as
I say, you know, the fact that the UK could
jump to the front of the queue because of this. Obviously,
going back to the point, the UK is still going
to take a hit, it's a marginally smaller hit as
a result of this, But yeah, we're we're not in
(05:21):
the sunlit uplands. You know, if you look, if you
look at the sort of compare what happened with the
India trade deal to this that it's far more significant
and comprehensive, if you like. That's much more of a
blueprint that the UK would like with the US. But
actually we've moved, you know, we're in a different world
with the US, and it's great news that the UK
got to the front of the queue from the perspective
of the UK economy and particularly for the car industry
(05:43):
and steel industry, very specifically those industries, because you know,
those twenty five percent tariff or that additional twenty five
percent tariff was going to be quite well, extremely punitive
for them.
Speaker 1 (05:52):
I know, we do want to talk about James Bond
in the second but before we get to James Bond,
three weeks is almost impossible in terms of timings to
get a raperate trade deal. Was that the issue, or
was that the US just did not want to get
the UK anymore?
Speaker 3 (06:06):
I mean, I think in terms of timing the world
we were in prior to well, when we're talking about
those sun lit up plans, we're trying to get the FTA.
There's so much detail that needs to be hashed out
with a trade deal, comprehensive trade deal, but I think
because Liberation they gave the UK and the US a
very specific set of issues to talk about, it becomes
a little bit easier. I'm not saying it's you know,
(06:29):
we know that the details haven't been finalized yet, and
Trump's obviously surprised everyone today, including the Prime Minister, with
this this announcement. So you know, I think, I think
it's going to be an evolving thing and it's going
to be a moving target. And that's and that's going
to be the case for every country as well, not just.
Speaker 2 (06:47):
Going to be there's going to be a lot of
None of this is going to pass without controversy, isn't it.
There's going to be. The beef has been mentioned in here.
You know, you can imagine British farmers are yet to
properly react. James Bond, you just mentioned about the film industry.
He'd tweet he'd about one hundred percent tariffs on film.
The film industry is an important part of the British economy.
(07:08):
What's the I've got the quote here Trump said James
Bond has nothing to worry about. But I mean that's
another detail we have no idea about in this as well.
So you mentioned the India deal. Now that's been talks
for that have been going on for years. That goes
back to the last government as to how how you
really iron out all of these details.
Speaker 3 (07:27):
Yeah, I remember the classic the classic example that was
banded around during sort of the Brexit period where we were,
you know, everything was up in the air was the
EU Canada deal you know, seven years and it was
to get everything hashed and it took a year to
hash out something around some of the stuff about I
think I can't remember exactly the detail one of the services,
legal services or something like that. You know, it takes
(07:48):
ages because it's so it's extremely detailed. So I think that,
as I said, for the nature of what they were
aiming for here, you know, we're just talking about tariffs.
We're not talking about alignment regulatory alignment for example. That's
very complicated, and particularly around the services industry, which obviously
the film industry is the services industry. You know, terrorists
(08:10):
are about goods, but all of a sudden, you know,
the services industry has been brought into this conversation with
that tweet, and obviously for the UK that's a very
different story. We don't have a balance relationship with the
US in services trade. We run a massive surplus with
the US in services trade. East financial services is exactly
exactly a management consultants, legal services, things like that. So
(08:34):
the argument that the government has been telling that we've
got a balance relationship with the US in trade that's
very much specific to goods. It's nothing to do with
services because we have a huge surplus with the US,
which is something we know that the President doesn't like.
Speaker 1 (08:48):
The US UK trade Deal or economic deal, I think,
as the Chancellor likes to call it was announced that
on Boe Day, so you know, Governor Bailey before actually
knowing what was in the trade deal, that it will
remove uncertainty because at least now you're looking at numbers
instead of speculation of what happens. Is that a positive
for the UK economy that actually we know with more
(09:09):
certainty how high these tariffs are.
Speaker 3 (09:12):
I think that's true. I also think, and I think
Bailey mention this as well, that you want what he
wants to see is trade deals with lots of countries
because this is a global shock. So to reduce the
uncertainty which is global shock, other countries need to know
this as well and just One important point for the
UK is a lot of our exports flow via other
(09:32):
countries to the US, and so the fact that those
countries haven't got a trade deal with the US means
that those exports are still going to be impacted by
those higher tariff levels. Now, of course cars are directly
sold to the US, so that's fine, but there's still
that impact via say THEU, via other countries or other
trading blocks. That that means that it's important for the UK,
(09:56):
not just obviously to have a deal in itself, but
for all those other trees to try and bring tarrist
down as well. So that's that's a really crucial point.
But fran to answer your question, of course lower uncertainty
is better for the economic outlook. But I think what
given the global nature of this shock, sort of the
UK kind of going it alone is not going to
mitigate the cost of the trade war Because the whole
(10:19):
global economy is going to be weaker, uncertainty is going
to be higher, and because we're a small, open economy,
we sort of we basically import that weakness.
Speaker 2 (10:27):
What do you think about what this means for Britain
and the and the EU, Because there's a there's this
parallel effort going on. Isn't there by kist arma to
improve on the Brexit deal? There was hatch a few
years ago.
Speaker 1 (10:38):
And it feels like it could be the bigger.
Speaker 2 (10:40):
Deal for them that's more important? Is it for Britain?
Absolutely our biggest Might this agreement, whatever you want to
call it, hinder that effort with.
Speaker 3 (10:50):
The I think that's a very good question. You're you're
absolutely right to say that the bigger economic prize is
a deeper relationship with the with the EU. I guess
what I find interesting about it is that the government
or the new government and the previous government, they're sort
of they've capped there how deep that integration will go.
(11:11):
They've ruled out the customs Union, obviously ruled out returning
to the Single Market. So that really limits you on
how far and how deep the reintegration, the degree of
reintegration that can occur. But I think Dave, you're right
that the fact that the UK has sort of taken
this path with the US, I think it's a different
(11:33):
beast they're looking to deal with in the sense that
the US deal is an easier deal to get to
because it's very specific about tariff levels. What the UK
is going to be talking about with the EU will
be sector specific deals to try and ease the strain
in certain areas, and a lot of that will be
about regulatory alignment. And it's a little bit more complicated. Nonetheless,
(11:55):
you know, you take it at face value, and it
looks like the sort of if the UK is going
to place its hat on one side or the other.
It feels like it feels like it feels like the
US is sort of at the front of the.
Speaker 1 (12:08):
Queue, especially in terms of timings, because it was today
that you took a game i think with about one
hundred billion countermeasures with the U S. So you wonder
how much of this is kind of you know, beating
beating their chest to try and see who's the alpha.
Speaker 3 (12:21):
And we've got the summit coming up coming up, haven't we,
And we'll see how how that goes. But I think,
you know, Kis Stammer is attempting to place himself as
the sort of you know, the conduit through man through
which both sides can can you know, and becoming a statesman,
and that's his that's his sort of if you.
Speaker 2 (12:38):
Can pull off a deal within the Indians deal with
the Americans and got a better track. I mean.
Speaker 3 (12:44):
Que And I think the interesting thing about all these
things in themselves they're quite small, but you could add
up quite a lot of what the government has done,
and all of a sudden you're thinking, actually, you know
this this ambition for growth, they're doing a lot of things.
There's not one big, big bang thing they can do,
but a lot of little things. And suddenly the picture
(13:06):
looks not hugely, but incrementally better. And I think that's
a positive story. And I think in time we'll probably
get something out of the government about this over the part.
You know, in the first twelve months of our government,
we've had all these boosts and you add it all
up and actually it's not economic.
Speaker 2 (13:23):
It's going to be upgrading their growth forecast.
Speaker 3 (13:25):
Well, we've we've you know, we've got a note hopefully
coming out or is already out on the terminal saying,
you know, this could lift GDP by another point one ish.
You know, I say, it's not, it's not, it's not
a big number, but you do that ten times, all
of a sudden it's a big number, and suddenly you
know when you're talking about one percent growth, and then
you're talking about two percent growth. That's a big difference.
(13:48):
And that's the sort of world just going back to
very sort of basic here and now sort of while
that we want to be in as a UK economy.
We don't want to be talking about no gross We
want to be talking about two percent growth. That's that's
the world we want to be in.
Speaker 1 (14:01):
Dan, how's the chance we're doing again that There's been
some things that she's done internally with taxes, with non
darms that have hurt growth. So does the I guess,
does goodness come in the foreign agreements, foreign trade agreements
kind of counterballance maybe some of the self inflict damage.
Speaker 3 (14:16):
Yeah, I think so. I mean, I think she's had
a bit of a tough, tough start. You had the
summer period last year, didn't you wear There was a
lot of talking down the economy. You had a very
difficult budget. You had the rise in interest rates and
the run up to the Spring Statement, which meant she
had to announce spending cuts, which she didn't want to
have to do. I think the big risk for her
(14:38):
over the next sort of six to twelve months is
what happens in October. So the OBR is going to
be putting together their new forecast. There is still this
view about over optimism from the Fiscal Watch talk about
how quickly the economy can grow in the future. If
it downgrades that view, it means tax receipts won't grow
as fast and it means that there'll be more difficult decisions.
(14:58):
So I think that she gets through that October budget
without having to do anything major, I think she'll be
breathe a sigh of relief. I think at the moment
she's worried. And of course we've got the spending review
coming up that's over the summer, but we haven't been
given a date for that. This everything that's been going
on with the US has sort of taken precedent. So
(15:18):
we've got the spending review that'll be difficult, and they've
got a factor in the defense spending sort of commitment
into that. As I say, then we've got the budget,
and I think that's the thing that she will be
worried about, and how the OBR go about go about
their business, because I think they've you know, the OBR
themselves have got the governments back up a bit with
handing them a bit of a difficult difficult backdrop and
(15:39):
keep forcing them to turn the screw to make sure
that they meet these fiscal rules.
Speaker 2 (15:43):
Yeah, and so for the bank, what does all of
this mean? I mean, we've had the right cut today,
we had potentially a bit of a surprise with a
couple of people voting for a half point basis, half
a point reduction instead of a quarter. So has the
trajectory for the bank changed the rest of the yearnsidering
the trade deal and all the cumulative things that you
mentioned and the slightly rosier picture of the UK economy,
(16:06):
might the bank not cut as much? I think?
Speaker 3 (16:09):
Yeah, I mean I think what we've learned from the
bank today, and like the sort of one line takeaway
from me is that the trade war is not enough
for us to slash rates aggressively. You know, we're still
going to stick to this quite considered a measured path.
But you know, drawing on the interview that fran had
with Bailey, he still thinks he thinks neutral, still thinks
(16:32):
he thinks neutral three and a half the neutral rate
is reasonable. So that and we're at four point twenty
five at the moment, so you know, maybe we need
you know, seventy five bases points more of cuts. So
I think as a baseline view, you know, a quarterly
pace of cuts is reasonable. That's our view. I think
the market might have got a little bit ahead of
itself in terms of how all central banks, not just
(16:54):
the Bank of England, would respond to this trade war.
We've had the FED basically sitting on its hands worried
about inflation and still so you know, really the source,
the source of a big global central bank pivot will
be if the US economy keels the FED gets worried,
then you'll see everyone going. But until you see that,
because that's going to be the big source of economic
(17:15):
global economic weakness because of the shock that we're experiencing.
Until you see that, it's hard to see that pivot
coming into view.
Speaker 1 (17:23):
Then last point, maybe what's your favorite data point. I mean, again,
we're seeing consumers being hit because they're saying, look, I'm
not sure, so let me just save and in case
something happens to my job or something like that. And
you see CEOs also not spending for the same reason
because they don't really know where they are in terms
of tariffs. Where do you what do you look at.
Speaker 3 (17:41):
In terms of gauging the impact of tariffs, or just generally,
what's my favorite what's my favorite data point?
Speaker 1 (17:46):
I mean as regards to the economy, not just your data.
Speaker 3 (17:49):
Your There are just so many days. It is now,
it is seven am. I just can't wait. You know what,
I think We're a consumer led economy, right, So I'm
going to pick something slightly out of the out of
left field and actually pick up something he said.
Speaker 2 (18:09):
But I really liked the look.
Speaker 3 (18:10):
The saving rate is just like a really cool thing
and nice way of gauging how people are feeling and thinking.
The quick way of getting at is getting out how
people think is looking at the jobs market, because if
people are worried about their job, they save more. Outside
of that, nothing beats a good CPI print.
Speaker 1 (18:32):
He's a classic, particularly.
Speaker 2 (18:34):
On such a mind bendingly busy afternoon. We really appreciate
you coming in to talk.
Speaker 3 (18:37):
To their problem.
Speaker 1 (18:38):
Thank you, thanks for listening to this episode of In
the City from Bloomberg. This episode was hosted by me
Francin Laqua and David Merritt. He was produced by Summersadi
Mosses and am and tala Ahmadi. Brendon Francis Newnham is
(18:58):
our executive producer Thanks to Dan Hansen. Please subscribe, rate,
and review wherever you listen to podcasts.
Bloomberg Audio Studios, podcasts, radio news. Welcome to in the City.
Each week we unpack a story that's crucial to the
world's financial capitals.
Speaker 2 (00:22):
I'm Francin Laqua and I'm David Merritt.
Speaker 1 (00:25):
So David's fair to say it's been a world one week,
actually a world one day for UK trade on Thursday,
first to deal with India and now a surprise announcement
US UK trade agreement.
Speaker 2 (00:33):
Absolutely, and you know we're taping this just as the
press conference has been going on from the Oval Office.
We've been watching Trump Star has been down the line
on the phone. The new United States Ambassador Peter Mandelson
is standing there looking very smart and please behind hat Howard.
Luckily the comment section has been talking, so this is
unfolding real time. The details of this, aount of this
(00:54):
trade deal is coming. And of course the US UK
trade deal has been long been the prize, isn't it.
British coverments ever since Brexit have been after has it
now actually come to pass? Yeah?
Speaker 1 (01:05):
And I think the good news for markets broadly is
that the pact is probably seen as a potential blueprint
for other trade deals. So there seems to be a
little bit of efforvens in saying, look, this is the
first one. We may get more deals, but then is
it really a trade deal or is it more like
an economic deal? Is it? I give you this, I
give for that, but it's not maybe the all encompassing
trade deal that the word suggests.
Speaker 2 (01:26):
And you know, we're pouring through the details obviously, and
I imagine there's going to be a lot of this
in the press in the coming days, so we're going
to have sort of zoom a bit out of this
and think, you know, what is the significance of this deal?
It is a coup. You know, we have to admit
here for the prime mini stuff for Costama, he's he's
the first country to land an agreement in your agreement
(01:47):
since Liberation Day, since Trump's Liberation Day sent markets central
teilspin And as you mentioned, Francine, this comes just a
few days after really a landmark deal between Britain and
India as well, which has been long in the making too.
So Britain suddenly kind of at the vanguard of global
trade or at least new new trade agreements. Who'd have
thought it?
Speaker 1 (02:07):
Who would have thought it? So we'll try and unpack
what it means for the broader economic outlook to unpack.
The latest updates were joined by Dan Hansen from Bloomberg Economics.
Speaker 2 (02:15):
Welcome to the City of London, the city of the city.
Speaker 3 (02:18):
The City of London.
Speaker 1 (02:21):
Then we need mind the gap between.
Speaker 2 (02:24):
The trade and the pafor the financial hearts of the country,
the city, the city. Welcome to in the city, stand
clear of the door.
Speaker 1 (02:40):
Pease, thank you so much for joining us. Not to
take anything away from the government, because you know they
are the first and actually means that they dealt with
it in a good way for what they needed. But
is this a big trade deal or is this coming
closer together after Liberation Day?
Speaker 3 (02:59):
I think it's this. I mean it's almost certainly the
second one, isn't it. Right, So you've got if you
think about the what's been or the sort of as
we get the drip feed of news, what we're hearing,
you know, tariffs are still going to be higher on
UK exports going to the US in a world where
we were talking about a US FTA prior to Liberation Day,
we were talking about tariffs on both sides going down,
(03:21):
possibly in trade barriers going down to possibly close to zero.
So that's what a free trade agreement would be. This
is about mitigating the cost of the tariffs. Obviously the
US has got something out of it on their side
as well, but I think from the UK perspective, we're
going from a world where, based on our calculations, at
least you had an increase in the tariff rate on
(03:43):
UK exports going to the US of about ten percentage points.
Based on what we've heard today, it will now be
a rise of about seven percentage points. So maybe a
third of the impact of the tariffs on Liberation Day
have been mitigated the direct impact. So it's a step
in the right direction. There are a lot of positive noises.
There's there's an interesting bit from the UK government's press
(04:04):
release about what will happen around Farmer, which is a
really bit important part of UK trade with the US,
and that the UK will get preferential treatment. Obviously Trump
hasn't made a decision about what he's going to do
with Farmer yet, but if the UK avoids those tariffs,
that'll be really important. So you know, it's a really
important step. We haven't got a huge amount of detail,
(04:25):
but it feels like we're taking a step. But we
sort of moved on Liberation Day. We've taken a step back,
but we haven't gone sort of back to pre Liberation Day,
a pre Liberation day world, if you like.
Speaker 2 (04:35):
So we're clawing back a bit of the damage that
was going to be done to the British economy by
the actions that the President took last month. But we're
not in the land of you know, the sunner uplands.
Remember those after Brexit that we were going to have
this big and beautiful trade deal with the United States
that was actually going to prove perhaps why Britain is
better off outside the EU, for instance. But we're not
(04:59):
in that.
Speaker 3 (04:59):
Sort of ter So we're not in that territory. And
I think you're absolutely right. I mean, interestingly, Trump tauted
Brexit in the in the press conference, didn't he as
I say, you know, the fact that the UK could
jump to the front of the queue because of this. Obviously,
going back to the point, the UK is still going
to take a hit, it's a marginally smaller hit as
a result of this, But yeah, we're we're not in
(05:21):
the sunlit uplands. You know, if you look, if you
look at the sort of compare what happened with the
India trade deal to this that it's far more significant
and comprehensive, if you like. That's much more of a
blueprint that the UK would like with the US. But
actually we've moved, you know, we're in a different world
with the US, and it's great news that the UK
got to the front of the queue from the perspective
of the UK economy and particularly for the car industry
(05:43):
and steel industry, very specifically those industries, because you know,
those twenty five percent tariff or that additional twenty five
percent tariff was going to be quite well, extremely punitive
for them.
Speaker 1 (05:52):
I know, we do want to talk about James Bond
in the second but before we get to James Bond,
three weeks is almost impossible in terms of timings to
get a raperate trade deal. Was that the issue, or
was that the US just did not want to get
the UK anymore?
Speaker 3 (06:06):
I mean, I think in terms of timing the world
we were in prior to well, when we're talking about
those sun lit up plans, we're trying to get the FTA.
There's so much detail that needs to be hashed out
with a trade deal, comprehensive trade deal, but I think
because Liberation they gave the UK and the US a
very specific set of issues to talk about, it becomes
a little bit easier. I'm not saying it's you know,
(06:29):
we know that the details haven't been finalized yet, and
Trump's obviously surprised everyone today, including the Prime Minister, with
this this announcement. So you know, I think, I think
it's going to be an evolving thing and it's going
to be a moving target. And that's and that's going
to be the case for every country as well, not just.
Speaker 2 (06:47):
Going to be there's going to be a lot of
None of this is going to pass without controversy, isn't it.
There's going to be. The beef has been mentioned in here.
You know, you can imagine British farmers are yet to
properly react. James Bond, you just mentioned about the film industry.
He'd tweet he'd about one hundred percent tariffs on film.
The film industry is an important part of the British economy.
(07:08):
What's the I've got the quote here Trump said James
Bond has nothing to worry about. But I mean that's
another detail we have no idea about in this as well.
So you mentioned the India deal. Now that's been talks
for that have been going on for years. That goes
back to the last government as to how how you
really iron out all of these details.
Speaker 3 (07:27):
Yeah, I remember the classic the classic example that was
banded around during sort of the Brexit period where we were,
you know, everything was up in the air was the
EU Canada deal you know, seven years and it was
to get everything hashed and it took a year to
hash out something around some of the stuff about I
think I can't remember exactly the detail one of the services,
legal services or something like that. You know, it takes
(07:48):
ages because it's so it's extremely detailed. So I think that,
as I said, for the nature of what they were
aiming for here, you know, we're just talking about tariffs.
We're not talking about alignment regulatory alignment for example. That's
very complicated, and particularly around the services industry, which obviously
the film industry is the services industry. You know, terrorists
(08:10):
are about goods, but all of a sudden, you know,
the services industry has been brought into this conversation with
that tweet, and obviously for the UK that's a very
different story. We don't have a balance relationship with the
US in services trade. We run a massive surplus with
the US in services trade. East financial services is exactly
exactly a management consultants, legal services, things like that. So
(08:34):
the argument that the government has been telling that we've
got a balance relationship with the US in trade that's
very much specific to goods. It's nothing to do with
services because we have a huge surplus with the US,
which is something we know that the President doesn't like.
Speaker 1 (08:48):
The US UK trade Deal or economic deal, I think,
as the Chancellor likes to call it was announced that
on Boe Day, so you know, Governor Bailey before actually
knowing what was in the trade deal, that it will
remove uncertainty because at least now you're looking at numbers
instead of speculation of what happens. Is that a positive
for the UK economy that actually we know with more
(09:09):
certainty how high these tariffs are.
Speaker 3 (09:12):
I think that's true. I also think, and I think
Bailey mention this as well, that you want what he
wants to see is trade deals with lots of countries
because this is a global shock. So to reduce the
uncertainty which is global shock, other countries need to know
this as well and just One important point for the
UK is a lot of our exports flow via other
(09:32):
countries to the US, and so the fact that those
countries haven't got a trade deal with the US means
that those exports are still going to be impacted by
those higher tariff levels. Now, of course cars are directly
sold to the US, so that's fine, but there's still
that impact via say THEU, via other countries or other
trading blocks. That that means that it's important for the UK,
(09:56):
not just obviously to have a deal in itself, but
for all those other trees to try and bring tarrist
down as well. So that's that's a really crucial point.
But fran to answer your question, of course lower uncertainty
is better for the economic outlook. But I think what
given the global nature of this shock, sort of the
UK kind of going it alone is not going to
mitigate the cost of the trade war Because the whole
(10:19):
global economy is going to be weaker, uncertainty is going
to be higher, and because we're a small, open economy,
we sort of we basically import that weakness.
Speaker 2 (10:27):
What do you think about what this means for Britain
and the and the EU, Because there's a there's this
parallel effort going on. Isn't there by kist arma to
improve on the Brexit deal? There was hatch a few
years ago.
Speaker 1 (10:38):
And it feels like it could be the bigger.
Speaker 2 (10:40):
Deal for them that's more important? Is it for Britain?
Absolutely our biggest Might this agreement, whatever you want to
call it, hinder that effort with.
Speaker 3 (10:50):
The I think that's a very good question. You're you're
absolutely right to say that the bigger economic prize is
a deeper relationship with the with the EU. I guess
what I find interesting about it is that the government
or the new government and the previous government, they're sort
of they've capped there how deep that integration will go.
(11:11):
They've ruled out the customs Union, obviously ruled out returning
to the Single Market. So that really limits you on
how far and how deep the reintegration, the degree of
reintegration that can occur. But I think Dave, you're right
that the fact that the UK has sort of taken
this path with the US, I think it's a different
(11:33):
beast they're looking to deal with in the sense that
the US deal is an easier deal to get to
because it's very specific about tariff levels. What the UK
is going to be talking about with the EU will
be sector specific deals to try and ease the strain
in certain areas, and a lot of that will be
about regulatory alignment. And it's a little bit more complicated. Nonetheless,
(11:55):
you know, you take it at face value, and it
looks like the sort of if the UK is going
to place its hat on one side or the other.
It feels like it feels like it feels like the
US is sort of at the front of the.
Speaker 1 (12:08):
Queue, especially in terms of timings, because it was today
that you took a game i think with about one
hundred billion countermeasures with the U S. So you wonder
how much of this is kind of you know, beating
beating their chest to try and see who's the alpha.
Speaker 3 (12:21):
And we've got the summit coming up coming up, haven't we,
And we'll see how how that goes. But I think,
you know, Kis Stammer is attempting to place himself as
the sort of you know, the conduit through man through
which both sides can can you know, and becoming a statesman,
and that's his that's his sort of if you.
Speaker 2 (12:38):
Can pull off a deal within the Indians deal with
the Americans and got a better track. I mean.
Speaker 3 (12:44):
Que And I think the interesting thing about all these
things in themselves they're quite small, but you could add
up quite a lot of what the government has done,
and all of a sudden you're thinking, actually, you know
this this ambition for growth, they're doing a lot of things.
There's not one big, big bang thing they can do,
but a lot of little things. And suddenly the picture
(13:06):
looks not hugely, but incrementally better. And I think that's
a positive story. And I think in time we'll probably
get something out of the government about this over the part.
You know, in the first twelve months of our government,
we've had all these boosts and you add it all
up and actually it's not economic.
Speaker 2 (13:23):
It's going to be upgrading their growth forecast.
Speaker 3 (13:25):
Well, we've we've you know, we've got a note hopefully
coming out or is already out on the terminal saying,
you know, this could lift GDP by another point one ish.
You know, I say, it's not, it's not, it's not
a big number, but you do that ten times, all
of a sudden it's a big number, and suddenly you
know when you're talking about one percent growth, and then
you're talking about two percent growth. That's a big difference.
(13:48):
And that's the sort of world just going back to
very sort of basic here and now sort of while
that we want to be in as a UK economy.
We don't want to be talking about no gross We
want to be talking about two percent growth. That's that's
the world we want to be in.
Speaker 1 (14:01):
Dan, how's the chance we're doing again that There's been
some things that she's done internally with taxes, with non
darms that have hurt growth. So does the I guess,
does goodness come in the foreign agreements, foreign trade agreements
kind of counterballance maybe some of the self inflict damage.
Speaker 3 (14:16):
Yeah, I think so. I mean, I think she's had
a bit of a tough, tough start. You had the
summer period last year, didn't you wear There was a
lot of talking down the economy. You had a very
difficult budget. You had the rise in interest rates and
the run up to the Spring Statement, which meant she
had to announce spending cuts, which she didn't want to
have to do. I think the big risk for her
(14:38):
over the next sort of six to twelve months is
what happens in October. So the OBR is going to
be putting together their new forecast. There is still this
view about over optimism from the Fiscal Watch talk about
how quickly the economy can grow in the future. If
it downgrades that view, it means tax receipts won't grow
as fast and it means that there'll be more difficult decisions.
(14:58):
So I think that she gets through that October budget
without having to do anything major, I think she'll be
breathe a sigh of relief. I think at the moment
she's worried. And of course we've got the spending review
coming up that's over the summer, but we haven't been
given a date for that. This everything that's been going
on with the US has sort of taken precedent. So
(15:18):
we've got the spending review that'll be difficult, and they've
got a factor in the defense spending sort of commitment
into that. As I say, then we've got the budget,
and I think that's the thing that she will be
worried about, and how the OBR go about go about
their business, because I think they've you know, the OBR
themselves have got the governments back up a bit with
handing them a bit of a difficult difficult backdrop and
(15:39):
keep forcing them to turn the screw to make sure
that they meet these fiscal rules.
Speaker 2 (15:43):
Yeah, and so for the bank, what does all of
this mean? I mean, we've had the right cut today,
we had potentially a bit of a surprise with a
couple of people voting for a half point basis, half
a point reduction instead of a quarter. So has the
trajectory for the bank changed the rest of the yearnsidering
the trade deal and all the cumulative things that you
mentioned and the slightly rosier picture of the UK economy,
(16:06):
might the bank not cut as much? I think?
Speaker 3 (16:09):
Yeah, I mean I think what we've learned from the
bank today, and like the sort of one line takeaway
from me is that the trade war is not enough
for us to slash rates aggressively. You know, we're still
going to stick to this quite considered a measured path.
But you know, drawing on the interview that fran had
with Bailey, he still thinks he thinks neutral, still thinks
(16:32):
he thinks neutral three and a half the neutral rate
is reasonable. So that and we're at four point twenty
five at the moment, so you know, maybe we need
you know, seventy five bases points more of cuts. So
I think as a baseline view, you know, a quarterly
pace of cuts is reasonable. That's our view. I think
the market might have got a little bit ahead of
itself in terms of how all central banks, not just
(16:54):
the Bank of England, would respond to this trade war.
We've had the FED basically sitting on its hands worried
about inflation and still so you know, really the source,
the source of a big global central bank pivot will
be if the US economy keels the FED gets worried,
then you'll see everyone going. But until you see that,
because that's going to be the big source of economic
(17:15):
global economic weakness because of the shock that we're experiencing.
Until you see that, it's hard to see that pivot
coming into view.
Speaker 1 (17:23):
Then last point, maybe what's your favorite data point. I mean, again,
we're seeing consumers being hit because they're saying, look, I'm
not sure, so let me just save and in case
something happens to my job or something like that. And
you see CEOs also not spending for the same reason
because they don't really know where they are in terms
of tariffs. Where do you what do you look at.
Speaker 3 (17:41):
In terms of gauging the impact of tariffs, or just generally,
what's my favorite what's my favorite data point?
Speaker 1 (17:46):
I mean as regards to the economy, not just your data.
Speaker 3 (17:49):
Your There are just so many days. It is now,
it is seven am. I just can't wait. You know what,
I think We're a consumer led economy, right, So I'm
going to pick something slightly out of the out of
left field and actually pick up something he said.
Speaker 2 (18:09):
But I really liked the look.
Speaker 3 (18:10):
The saving rate is just like a really cool thing
and nice way of gauging how people are feeling and thinking.
The quick way of getting at is getting out how
people think is looking at the jobs market, because if
people are worried about their job, they save more. Outside
of that, nothing beats a good CPI print.
Speaker 1 (18:32):
He's a classic, particularly.
Speaker 2 (18:34):
On such a mind bendingly busy afternoon. We really appreciate
you coming in to talk.
Speaker 3 (18:37):
To their problem.
Speaker 1 (18:38):
Thank you, thanks for listening to this episode of In
the City from Bloomberg. This episode was hosted by me
Francin Laqua and David Merritt. He was produced by Summersadi
Mosses and am and tala Ahmadi. Brendon Francis Newnham is
(18:58):
our executive producer Thanks to Dan Hansen. Please subscribe, rate,
and review wherever you listen to podcasts.
Host
Francine Lacqua
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