April 24, 2025 • 15 mins
On Tuesday, Megan Greene, one of the Bank of England’s most hawkish policymakers, said that while President Donald Trump’s wave of global tariffs is likely to raise prices in the US, the effect in the UK could be the opposite. “I think that the tariffs actually represent more of a disinflationary risk than an inflationary risk,” she says.
On this week’s In The City, host Francine Lacqua sits down with Bloomberg UK economy reporter Tom Rees to break down Greene’s comments. They explore how US tariffs could create disinflationary pressure in the UK through trade diversion, and what that means for the BOE's outlook—including the likelihood of aggressive rate cuts and the use of quantitative easing.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:17):
Welcome to in the City. Each week we unpack a
story that's crucial to the world's financial capitals. I'm Francin
Laqua and this week, no surprise. The story, of course
that continues to be the focus of the financial world
is the ongoing trade war courtesy of one US President,
Donald Trump. So I want to spend this episode looking
at the risks that the US tariffs posed to the
UK economy, and one of those risks, of course, this disinflation.
(00:39):
On Tuesday, Megan Green, one of the Bank of England's
most hawkish policymakers, joined me on Bloomberg TV. She explained
why she thinks while Trump's wave of global tariffs is
expected to raise prices in the US, here in Britain
we might see the opposite. So I'm going to bring
you some of the highlights from our conversation. But also
with me here in the London studio is our UK
Economy reporter. Now, Tom was with me in the interview
(01:02):
with Meghan, and then he got a chance to speak
to her himself to hear more on how the Bank
of England might handle the next crisis. So good to
have you, Tom Hi.
Speaker 1 (01:11):
Welcome to the City.
Speaker 3 (01:12):
Of London, the City of the City, the City of London.
Speaker 1 (01:17):
Please mind the gap between the tree and the financial
hearts of the country, the city, the City.
Speaker 4 (01:29):
Welcome in the city.
Speaker 1 (01:33):
Stand clear of the doors. Dom.
Speaker 2 (01:37):
I mean, this is a central bank's worst nightmare because
they're terroriffts. You don't know whether it hits growth more
than inflation. You don't know how the monetary policy reaction
function goes. But you also don't know whether these terrifs
stay or whether the negotiated So your models are all
screwed up.
Speaker 4 (01:52):
Absolutely. And before all this came about, you know, the
Bank of Nyam was kind of dealing with the opposite
promb kind of stagnant grove. But you know, inflation pressure
was still pretty high. You know, the growth picture is
obviously weaker, but it's the inflationary picture that it doesn't
seem so certain on. I mean, most people think, you know,
most of the effects of this are disinflationary. You've got
(02:12):
kind of trade diversion effects. You know, if Chinese goods
have to find a different market. You've got oil prices
have come down by you know, someone like fourteen dollars
per barrel. You've got sterling which is appreciated against the dollar.
Global growth it's going to be weaker as well. So
it seems like to most people there's you know, a
disinflatory forces will be on top. But the banking is
(02:36):
still being very cautious, still being a bit hesitant about
endorsing that view. It still sees at some risk. Meghan
Green did mention a few of those risks in an interview,
but she did say that she thought at the moment
the disinflationary stuff outweighs the inflationary factors.
Speaker 3 (02:53):
When it comes to tariffs, in particular for the UK
or a small open economy. Right, you know, the US
is our biggest single country trade partner, but the EU
of course is our biggest trade partner overall. So if
you have export substitution, then that would tend to push
down on growth and inflation. If you have trade diversion
from other countries that are trying to find a new
(03:14):
home for their markets, that also pushes down on inflation.
But we saw during the pandemic that if you have
a repatterning of supply chains, that can push up on inflation.
And also if we have trade fragmentation writ large, then
that tends to reduce knowledge spillovers, that reduces potential growth.
That tends to be inflationary. So something you've mentioned was
exchange rates, and those have not gone as the economic
(03:37):
theory would suggest. Normally, if the US announces or imposes
unilateral tarifs in other countries, the theory suggests the dollars
should appreciate the opposite has actually happened, and so that
in and of itself could be disinflationary for the UK.
But of course, as I mentioned, the EU is the
UK's biggest trade partner, in the Euro has appreciated, so
(03:58):
net net, if you look at the kind of sterling
exchange rate index that pounds up a little bit. There's
a ton of uncertainty around this, but there are both
inflationary and disinflationary forces.
Speaker 2 (04:08):
Dom when you look at disinflation, I mean again, central
banks worst scenario, or frankly, any policy makers worse scenario
is to have inflation with weak growth, because then you
really don't know what monetary policy looks like, what are
markets expecting in Given all the uncertainty of how the
Bank of England reacts over the next twelve months.
Speaker 4 (04:28):
So heading into Liberation Day, as it's now known, investors
were really starting to doubt how many more mate cuts
we were going to get in the UK. So there
was about forty basis points of easing priced in for
the rest of this year about a month ago. We're
now looking at over ninety. So we've basically gone from
(04:48):
doubts over whether we're going to get just one more
cut to maybe four more cuts. So it is quite
a big shift that we've seen the bank's being on
this very gradual path. It's been cutting rates at about
once a quarter since August, and now we're looking at
maybe back to backcuts, you know, them speeding up the
pace a bit. So we will probably get a cut
(05:10):
in May, we might get another one in June. So
it really depends on how the bank handles this uncertainty.
They could be a bit more cautious and stick to
this kind of once a quarter, but I think as
we get more news of growth slowing. We had the
pmis which were dreadful and really showed a kind of
sharp dropping business sentiment. I suspect that they might push
(05:33):
towards a kind of quicker easing, and Tommy.
Speaker 2 (05:35):
Have all these competing forces. Right, you have energy prices
that for the moment are going lower, you have a
weaker dollar, you have tightening financial conditions, you have this
global demand worldwide that is slowing. So how does the
pound again foreign exchange, which the dollars behaving in a
way that not many predicted. How is the Bank of
England thinking about strolling dynamics and how that impacts actually
(05:57):
the UK economy.
Speaker 4 (05:59):
So this is one of the things things that Megan
brought up in the interview yesterday, and I've heard Deputy
given A sah Breeder mentioned as well as one of
the big kind of uncertainties.
Speaker 3 (06:08):
If the pound were to strengthen more, actually then we'll
be importing disinflationary forces. If the pound were to depreciate,
then the opposite would happen. So it just underscores the
amount of uncertainty that we're looking at, given that we
are basing our policy now on where we expect the
economy to be in a year and a half two
years time. It's pretty difficult.
Speaker 4 (06:29):
But I mean, if you look at it the moment,
what's happened to the pound can only be disinflationory so far.
So if that continues then they'll have to consider that
when they're thinking about whether to ease or not.
Speaker 2 (06:41):
How complicated is it to set monetary policy right now?
Speaker 4 (06:44):
Very complicated, and in the UK especially so, because we
went into this with relatives to say, the year Zone.
We went to this with a lingering kind of inflation issue.
Everyone else seems to have got a lot more on
top of some of the domestic inflatory pressures. In the UK,
we still have wage growth that's above five percent. We've
got services inflation that's still in the fours which just
(07:06):
aren't compatible with having inflation headline inflation at the two
percent target. So it was already difficult going into that,
and this just poses a whole new set of problems.
I think the main issue for them is just the
uncertainty about the kind of the end state. So the
US tariffs on the UK, we're at ten percent originally
(07:26):
that's the baseline. Maybe there's a bit more certainty. It's
other countries where it's a bit more up in the air,
and I think that does matter in terms of what
happens with inflation. One of the questions I supposed is
will it cause supply chain disruptions? We saw that be
quite important for inflation during the pandemic, and I guess
what you could see is that there's ninety day reprieve
(07:47):
for a lot of countries and do you see people
stock Poland during that time and maybe they rush to
grab as much of certain materials as they can do
us importance, do they try and find alternative supplies from
countries where they think it will end up with a
lower tie. So that end state is still quite uncertain,
(08:09):
and I think that's going to be the problem for
the Bank Fringland the next two meetings is that you
don't really want to speed up, and then you have
these different forces kick in.
Speaker 2 (08:20):
If you're the UK, so the positives are you have
only ten percent terrors at the moment that can be
negotiated down. But actually that's a better deal than a
lot of other countries or a lot of other regions.
I guess on the negative side is that you also
have a fairly new government that was elected last summer
with some of the policies and what they're trying to do.
(08:40):
You wrote a great story on the budget deficit in
the UK and the fact that the Chancellor may have
to either increase taxes to balance the books and even
cut spending a lot more. So there's all these unknowns
of what they've put in place when they came into power, yeah,
before Donald Trump got elected.
Speaker 4 (08:56):
This is a bit of a nightmare for the government.
The Spring Statement in March, just a couple of days
before Trump, you know, announced all the tariffs, it already
had to cut spending just to make the sums add up.
There's no secret in the UK the growth picture is terrible.
It means that we can't really spend more money. But
this is a government that was kind of elected on
a promise to revive public services, so it kind of
(09:17):
stuck between those two pressures. And we had some more
boring figures from the s and they basically showed that
boring overshot the obr's forecasts again in the last fiscal year.
And when we look ahead towards the autumn budget, her
physcal plans are predicated on some still pretty punchy growth
numbers from the ABR. So the ABR have GDP growth
(09:40):
getting back up to two percent or just under two
percent next year. It just is looking a little bit
optimistic given what's going on around the world.
Speaker 2 (09:49):
Tom I know, Megan Green in our interview didn't want
to talk about the FED and this is very understandably,
but how does the Bank of England kind of need
to track the FED in terms of moves a little
bit because of dollar dynamics. There's again a belief in
the markets, although it changes very quickly, that the FED
is kind of stuck that they can't really do anything
until the third quarter when the labor market probably slows
(10:10):
down a lot and that's when they start cutting aggressively.
Does that influence what the Bank of England can do
in terms of cuts this year?
Speaker 4 (10:18):
That's part of that exchange rate picture that we're talking about.
You know, if we do see the Bank of England
as you tracked the FED roughly in terms of policy,
but I guess what you might see is that diversion
open up a bit more this year is you know,
the FEDS will probably have more of an inflation issue
than to deal with than the BOE. So how it
(10:40):
deals with that, because you know you've got the exchange rate,
that's an issue. But another big thing is is that
UK markets, you know, UK rate expectations heavily influenced by
what's going on in the US. There's a massive pass
through between those two markets, and do you then therefore
need the Bank of England to try an offset that
go more aggressively on rate cuts. But then you've got
(11:02):
that hole with that push down sterling. Further, does that
exchange rate problem come into play so that there's a
kind of balancing act there, So what the Fed does matter?
Bank running rate set is all we're trying to play
that down, but it still needs to come into that.
Speaker 2 (11:17):
Think, yeah, we had a couple of wild days on
the markets Monthay and Tuesday because of a slight expectation
I wasn't fully priced in the markets. But Donaldrup is
pretty aggresive towards Dray Powell. And so central bank independence
has to be on the forefront of every central bank,
including NPC members, because that's there if you stop trusting
(11:38):
that central banks are independent and all bets are off. Yeah.
Speaker 3 (11:41):
Absolutely, Credibility is the currency of central banks and I
think independence is quite an important piece of that. And
that when we say we will hit our target, and
the target for the Bank of England is provided by Treasury,
but we will hit our target, I think we can
do so credibly because we're free to make the decisions
that we believe will most effectively achieve that, and so
(12:03):
I think Central Bank independence is absolutely crucial.
Speaker 4 (12:06):
She was saying to me afterwards that she doesn't actually
worry about the independence issue in this country, which personally,
I think there is still a bit of an issue
in this country, and I actually think it predates what's
been going on in the US and Trump calling Powell
a major loser, et cetera. We've had Tory MPs people
in Reform all sort of question the Bank's independence, largely
(12:28):
because we're just due to slightly different accounting arrangements around
QE and QT. There's some huge fiscal losses from the
bond operations in the UK, and it's something that politicians have.
The boring figures this morning showed that in the kind
of the last fiscal year it costs the treasury about
thirty six billion just from the losses from QT. So
(12:50):
that's a huge amount of money that could be going towards,
you know, public services. So I actually don't think the
independence issue is necessarily something that's confined to the US.
I think that's something that particularly with Reform, and you know,
they're polling pretty much neck and neck with labor at
the moment. I think that could easily become an issue
in this country as well.
Speaker 2 (13:09):
Yeah, which is why it's so important what Donald Trump
does in the US, although he has since swacked it
back and say he has no plans to fire J Powell.
You spoke to Meghan Green after the TV interview and
it was really interesting. You talked about longer term, right,
how some of how they do and actually shape QIY,
how it could change during the next crisis.
Speaker 4 (13:28):
Well, I kind of wonder whether this is slightly in
response to what we were just talking about in terms
of those political pressures. But Meghan were saying that she
saw scenarios in the future where we use que in
a kind of more targeted and more sparing way. There's
been a lot of criticism of the banking other central
banks as well, about them just flooding markets with que
(13:51):
during the pandemic. You had the supply side the economy
suppressed by lockdowns and things like that, and you were
stoken demands. Some people think that that help to push
up inflation. You've got very prominent people who think that.
You know, the ex Governor of the Bank of England,
Irving King, is one of those. And I think we
saw in the if you remember the LDI crisis with
during the Liz Truss it were just reminded that we
(14:11):
saw bond yields spy cafter Liz trust is kind of
mini budget of major tax cuts that almost top alled
a part of the pension industry and the Bank of
England had intervene with bomb purchases. The banks say that
wasn't Quey, but it certainly looked a lot like it,
and it very quickly reversed those purchases. It sold them
off very quickly. And I think what Megan was getting
(14:32):
at is that maybe that could be a blueprint not
just for the Bank of England but of the central
banks in future, and that you kind of step in,
you kind of car markets, but then you get out
very quickly and you're not left with these massive losses
that were sustaining now through through the QT program.
Speaker 2 (14:48):
So it was her main message that despite market volatility,
the Bank of England should stay firm on unwinding quy.
Speaker 4 (14:54):
Yes, yeah, yeah. So we asked whether this bond volatility
would maybe cause the bankulin to rethink the QT plans
and she was saying no, it's still running in the background.
In September, we won't put market conditions at the kind
of forefront of our thinking. And she was saying that
there is like a kind of get out clause in
(15:15):
the way QT is set up. So if QT was
affecting bond yields by a lot, then there is a
kind of get out clause and they can stop it.
Speaker 2 (15:23):
Tom, thank you so much, thanks for listening to this
week's In the City from Bloomberg. This episode was hosted
by me Francin Laqua. It was produced by Summersadi Moses
and and Taala Mardi. Brendon. Francis Nunham is our executive producer.
Special thanks to Tom Reese and Meghan Green. Please subscribe, rate,
(15:44):
and review wh wherever you listen to podcasts.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:17):
Welcome to in the City. Each week we unpack a
story that's crucial to the world's financial capitals. I'm Francin
Laqua and this week, no surprise. The story, of course
that continues to be the focus of the financial world
is the ongoing trade war courtesy of one US President,
Donald Trump. So I want to spend this episode looking
at the risks that the US tariffs posed to the
UK economy, and one of those risks, of course, this disinflation.
(00:39):
On Tuesday, Megan Green, one of the Bank of England's
most hawkish policymakers, joined me on Bloomberg TV. She explained
why she thinks while Trump's wave of global tariffs is
expected to raise prices in the US, here in Britain
we might see the opposite. So I'm going to bring
you some of the highlights from our conversation. But also
with me here in the London studio is our UK
Economy reporter. Now, Tom was with me in the interview
(01:02):
with Meghan, and then he got a chance to speak
to her himself to hear more on how the Bank
of England might handle the next crisis. So good to
have you, Tom Hi.
Speaker 1 (01:11):
Welcome to the City.
Speaker 3 (01:12):
Of London, the City of the City, the City of London.
Speaker 1 (01:17):
Please mind the gap between the tree and the financial
hearts of the country, the city, the City.
Speaker 4 (01:29):
Welcome in the city.
Speaker 1 (01:33):
Stand clear of the doors. Dom.
Speaker 2 (01:37):
I mean, this is a central bank's worst nightmare because
they're terroriffts. You don't know whether it hits growth more
than inflation. You don't know how the monetary policy reaction
function goes. But you also don't know whether these terrifs
stay or whether the negotiated So your models are all
screwed up.
Speaker 4 (01:52):
Absolutely. And before all this came about, you know, the
Bank of Nyam was kind of dealing with the opposite
promb kind of stagnant grove. But you know, inflation pressure
was still pretty high. You know, the growth picture is
obviously weaker, but it's the inflationary picture that it doesn't
seem so certain on. I mean, most people think, you know,
most of the effects of this are disinflationary. You've got
(02:12):
kind of trade diversion effects. You know, if Chinese goods
have to find a different market. You've got oil prices
have come down by you know, someone like fourteen dollars
per barrel. You've got sterling which is appreciated against the dollar.
Global growth it's going to be weaker as well. So
it seems like to most people there's you know, a
disinflatory forces will be on top. But the banking is
(02:36):
still being very cautious, still being a bit hesitant about
endorsing that view. It still sees at some risk. Meghan
Green did mention a few of those risks in an interview,
but she did say that she thought at the moment
the disinflationary stuff outweighs the inflationary factors.
Speaker 3 (02:53):
When it comes to tariffs, in particular for the UK
or a small open economy. Right, you know, the US
is our biggest single country trade partner, but the EU
of course is our biggest trade partner overall. So if
you have export substitution, then that would tend to push
down on growth and inflation. If you have trade diversion
from other countries that are trying to find a new
(03:14):
home for their markets, that also pushes down on inflation.
But we saw during the pandemic that if you have
a repatterning of supply chains, that can push up on inflation.
And also if we have trade fragmentation writ large, then
that tends to reduce knowledge spillovers, that reduces potential growth.
That tends to be inflationary. So something you've mentioned was
exchange rates, and those have not gone as the economic
(03:37):
theory would suggest. Normally, if the US announces or imposes
unilateral tarifs in other countries, the theory suggests the dollars
should appreciate the opposite has actually happened, and so that
in and of itself could be disinflationary for the UK.
But of course, as I mentioned, the EU is the
UK's biggest trade partner, in the Euro has appreciated, so
(03:58):
net net, if you look at the kind of sterling
exchange rate index that pounds up a little bit. There's
a ton of uncertainty around this, but there are both
inflationary and disinflationary forces.
Speaker 2 (04:08):
Dom when you look at disinflation, I mean again, central
banks worst scenario, or frankly, any policy makers worse scenario
is to have inflation with weak growth, because then you
really don't know what monetary policy looks like, what are
markets expecting in Given all the uncertainty of how the
Bank of England reacts over the next twelve months.
Speaker 4 (04:28):
So heading into Liberation Day, as it's now known, investors
were really starting to doubt how many more mate cuts
we were going to get in the UK. So there
was about forty basis points of easing priced in for
the rest of this year about a month ago. We're
now looking at over ninety. So we've basically gone from
(04:48):
doubts over whether we're going to get just one more
cut to maybe four more cuts. So it is quite
a big shift that we've seen the bank's being on
this very gradual path. It's been cutting rates at about
once a quarter since August, and now we're looking at
maybe back to backcuts, you know, them speeding up the
pace a bit. So we will probably get a cut
(05:10):
in May, we might get another one in June. So
it really depends on how the bank handles this uncertainty.
They could be a bit more cautious and stick to
this kind of once a quarter, but I think as
we get more news of growth slowing. We had the
pmis which were dreadful and really showed a kind of
sharp dropping business sentiment. I suspect that they might push
(05:33):
towards a kind of quicker easing, and Tommy.
Speaker 2 (05:35):
Have all these competing forces. Right, you have energy prices
that for the moment are going lower, you have a
weaker dollar, you have tightening financial conditions, you have this
global demand worldwide that is slowing. So how does the
pound again foreign exchange, which the dollars behaving in a
way that not many predicted. How is the Bank of
England thinking about strolling dynamics and how that impacts actually
(05:57):
the UK economy.
Speaker 4 (05:59):
So this is one of the things things that Megan
brought up in the interview yesterday, and I've heard Deputy
given A sah Breeder mentioned as well as one of
the big kind of uncertainties.
Speaker 3 (06:08):
If the pound were to strengthen more, actually then we'll
be importing disinflationary forces. If the pound were to depreciate,
then the opposite would happen. So it just underscores the
amount of uncertainty that we're looking at, given that we
are basing our policy now on where we expect the
economy to be in a year and a half two
years time. It's pretty difficult.
Speaker 4 (06:29):
But I mean, if you look at it the moment,
what's happened to the pound can only be disinflationory so far.
So if that continues then they'll have to consider that
when they're thinking about whether to ease or not.
Speaker 2 (06:41):
How complicated is it to set monetary policy right now?
Speaker 4 (06:44):
Very complicated, and in the UK especially so, because we
went into this with relatives to say, the year Zone.
We went to this with a lingering kind of inflation issue.
Everyone else seems to have got a lot more on
top of some of the domestic inflatory pressures. In the UK,
we still have wage growth that's above five percent. We've
got services inflation that's still in the fours which just
(07:06):
aren't compatible with having inflation headline inflation at the two
percent target. So it was already difficult going into that,
and this just poses a whole new set of problems.
I think the main issue for them is just the
uncertainty about the kind of the end state. So the
US tariffs on the UK, we're at ten percent originally
(07:26):
that's the baseline. Maybe there's a bit more certainty. It's
other countries where it's a bit more up in the air,
and I think that does matter in terms of what
happens with inflation. One of the questions I supposed is
will it cause supply chain disruptions? We saw that be
quite important for inflation during the pandemic, and I guess
what you could see is that there's ninety day reprieve
(07:47):
for a lot of countries and do you see people
stock Poland during that time and maybe they rush to
grab as much of certain materials as they can do
us importance, do they try and find alternative supplies from
countries where they think it will end up with a
lower tie. So that end state is still quite uncertain,
(08:09):
and I think that's going to be the problem for
the Bank Fringland the next two meetings is that you
don't really want to speed up, and then you have
these different forces kick in.
Speaker 2 (08:20):
If you're the UK, so the positives are you have
only ten percent terrors at the moment that can be
negotiated down. But actually that's a better deal than a
lot of other countries or a lot of other regions.
I guess on the negative side is that you also
have a fairly new government that was elected last summer
with some of the policies and what they're trying to do.
(08:40):
You wrote a great story on the budget deficit in
the UK and the fact that the Chancellor may have
to either increase taxes to balance the books and even
cut spending a lot more. So there's all these unknowns
of what they've put in place when they came into power, yeah,
before Donald Trump got elected.
Speaker 4 (08:56):
This is a bit of a nightmare for the government.
The Spring Statement in March, just a couple of days
before Trump, you know, announced all the tariffs, it already
had to cut spending just to make the sums add up.
There's no secret in the UK the growth picture is terrible.
It means that we can't really spend more money. But
this is a government that was kind of elected on
a promise to revive public services, so it kind of
(09:17):
stuck between those two pressures. And we had some more
boring figures from the s and they basically showed that
boring overshot the obr's forecasts again in the last fiscal year.
And when we look ahead towards the autumn budget, her
physcal plans are predicated on some still pretty punchy growth
numbers from the ABR. So the ABR have GDP growth
(09:40):
getting back up to two percent or just under two
percent next year. It just is looking a little bit
optimistic given what's going on around the world.
Speaker 2 (09:49):
Tom I know, Megan Green in our interview didn't want
to talk about the FED and this is very understandably,
but how does the Bank of England kind of need
to track the FED in terms of moves a little
bit because of dollar dynamics. There's again a belief in
the markets, although it changes very quickly, that the FED
is kind of stuck that they can't really do anything
until the third quarter when the labor market probably slows
(10:10):
down a lot and that's when they start cutting aggressively.
Does that influence what the Bank of England can do
in terms of cuts this year?
Speaker 4 (10:18):
That's part of that exchange rate picture that we're talking about.
You know, if we do see the Bank of England
as you tracked the FED roughly in terms of policy,
but I guess what you might see is that diversion
open up a bit more this year is you know,
the FEDS will probably have more of an inflation issue
than to deal with than the BOE. So how it
(10:40):
deals with that, because you know you've got the exchange rate,
that's an issue. But another big thing is is that
UK markets, you know, UK rate expectations heavily influenced by
what's going on in the US. There's a massive pass
through between those two markets, and do you then therefore
need the Bank of England to try an offset that
go more aggressively on rate cuts. But then you've got
(11:02):
that hole with that push down sterling. Further, does that
exchange rate problem come into play so that there's a
kind of balancing act there, So what the Fed does matter?
Bank running rate set is all we're trying to play
that down, but it still needs to come into that.
Speaker 2 (11:17):
Think, yeah, we had a couple of wild days on
the markets Monthay and Tuesday because of a slight expectation
I wasn't fully priced in the markets. But Donaldrup is
pretty aggresive towards Dray Powell. And so central bank independence
has to be on the forefront of every central bank,
including NPC members, because that's there if you stop trusting
(11:38):
that central banks are independent and all bets are off. Yeah.
Speaker 3 (11:41):
Absolutely, Credibility is the currency of central banks and I
think independence is quite an important piece of that. And
that when we say we will hit our target, and
the target for the Bank of England is provided by Treasury,
but we will hit our target, I think we can
do so credibly because we're free to make the decisions
that we believe will most effectively achieve that, and so
(12:03):
I think Central Bank independence is absolutely crucial.
Speaker 4 (12:06):
She was saying to me afterwards that she doesn't actually
worry about the independence issue in this country, which personally,
I think there is still a bit of an issue
in this country, and I actually think it predates what's
been going on in the US and Trump calling Powell
a major loser, et cetera. We've had Tory MPs people
in Reform all sort of question the Bank's independence, largely
(12:28):
because we're just due to slightly different accounting arrangements around
QE and QT. There's some huge fiscal losses from the
bond operations in the UK, and it's something that politicians have.
The boring figures this morning showed that in the kind
of the last fiscal year it costs the treasury about
thirty six billion just from the losses from QT. So
(12:50):
that's a huge amount of money that could be going towards,
you know, public services. So I actually don't think the
independence issue is necessarily something that's confined to the US.
I think that's something that particularly with Reform, and you know,
they're polling pretty much neck and neck with labor at
the moment. I think that could easily become an issue
in this country as well.
Speaker 2 (13:09):
Yeah, which is why it's so important what Donald Trump
does in the US, although he has since swacked it
back and say he has no plans to fire J Powell.
You spoke to Meghan Green after the TV interview and
it was really interesting. You talked about longer term, right,
how some of how they do and actually shape QIY,
how it could change during the next crisis.
Speaker 4 (13:28):
Well, I kind of wonder whether this is slightly in
response to what we were just talking about in terms
of those political pressures. But Meghan were saying that she
saw scenarios in the future where we use que in
a kind of more targeted and more sparing way. There's
been a lot of criticism of the banking other central
banks as well, about them just flooding markets with que
(13:51):
during the pandemic. You had the supply side the economy
suppressed by lockdowns and things like that, and you were
stoken demands. Some people think that that help to push
up inflation. You've got very prominent people who think that.
You know, the ex Governor of the Bank of England,
Irving King, is one of those. And I think we
saw in the if you remember the LDI crisis with
during the Liz Truss it were just reminded that we
(14:11):
saw bond yields spy cafter Liz trust is kind of
mini budget of major tax cuts that almost top alled
a part of the pension industry and the Bank of
England had intervene with bomb purchases. The banks say that
wasn't Quey, but it certainly looked a lot like it,
and it very quickly reversed those purchases. It sold them
off very quickly. And I think what Megan was getting
(14:32):
at is that maybe that could be a blueprint not
just for the Bank of England but of the central
banks in future, and that you kind of step in,
you kind of car markets, but then you get out
very quickly and you're not left with these massive losses
that were sustaining now through through the QT program.
Speaker 2 (14:48):
So it was her main message that despite market volatility,
the Bank of England should stay firm on unwinding quy.
Speaker 4 (14:54):
Yes, yeah, yeah. So we asked whether this bond volatility
would maybe cause the bankulin to rethink the QT plans
and she was saying no, it's still running in the background.
In September, we won't put market conditions at the kind
of forefront of our thinking. And she was saying that
there is like a kind of get out clause in
(15:15):
the way QT is set up. So if QT was
affecting bond yields by a lot, then there is a
kind of get out clause and they can stop it.
Speaker 2 (15:23):
Tom, thank you so much, thanks for listening to this
week's In the City from Bloomberg. This episode was hosted
by me Francin Laqua. It was produced by Summersadi Moses
and and Taala Mardi. Brendon. Francis Nunham is our executive producer.
Special thanks to Tom Reese and Meghan Green. Please subscribe, rate,
(15:44):
and review wh wherever you listen to podcasts.
Host
Francine Lacqua
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