The world could pay a high price for the US launching war on Iran.
Global shipping's in turmoil as Donald Trump's naval blockade increases uncertainty, although he's hinting peace talks could resume.
The International Monetary Fund's warning a prolonged conflict could tilt the global economy towards recession.
Former Chief Economic Advisor to Boris Johnson, Gerard Lyons told Mike Hosking that from an economic perspective, there are no easy wins for the UK.
He says it’s likely that growth will be low, inflation will rise, and unfortunately unemployment, which currently sits around 5.4%, could head even higher.
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Speaker 1 (00:00):
I got the big wake up call this week from
(00:01):
the IMF. Global recession is on its way. They argue.
If deals aren't done in the Middle East and Australia
isn't open, they cut their global growth forecast. Of course,
places like Britain were particularly hard hit. Jared Lyon's former
chief economic advisor to Boris Johnson, candidate for the Governor
of the Bank of England, is with us on all
of us. Jared, morning to you, good morning. Just a
very bad terms because I'm fascinated with Britain, the state
(00:25):
of Britain at the moment as you see it in
terms of welfare, in debt, the government. I mean, it
seems Missy, is that fear.
Speaker 2 (00:34):
Yeah, well, Britain is pretty much in the same stace
as the other major economies of Western Europe, which isn't
particularly good. We were heading into this year with pretty
modest growth, but on the positive inflation was forwarding. The
war has scuffered that it's going to hit growth, maybe
particularly hard. It's going to push inflation higher and instead
of UK interest rates being able to ford, they're likely
(00:56):
to increase and against this bat chop. It makes it
very difficult for the government to make an inroad into
what is the pretty poor economic picture and stagnant living standards.
In fact, living standards have been pretty stagnant now since
the two thousand and eight global financial crisis, so not
a great backdrop if we're looking for good news is
the fact that the French, the Germans, and the Italians
(01:18):
are pretty much in the same situation.
Speaker 1 (01:20):
Yeah, Rachael Rusel already had problems with the cost of
borrowing before this, and I'm assuming it's not got any better.
That message from the IMF that you cannot buy your
way using it out of trouble. Do you think that
lends in a place like Britain.
Speaker 2 (01:34):
Yeah, Look, the fiscal position that is pretty poor in
the UK, and the best way out of it is
stronger economic growth. We're not going to get that. What's
going to make it particularly difficult now is not just
that that tax revenues aren't going to be given a boost,
but also that interest rates maybe will have to head higher.
Before the war started, it seemed likely that UK interest
(01:57):
rates would fall twice this year. After the war started,
the market started to factor in higher rates. They've settled
down a bit, but still the likelihood is that the
Bank of England might be forced to raise rates. I
personally don't think they should, but that's the likelihood. So
coming back to your question, it's very difficult for the
government to pull any fiscal levers in terms of spending
or tax the balance.
Speaker 1 (02:20):
Starmer's been the star of the show, I guess in
the political sphere, in his relationship with Trump. What's the
balance between the politics of what Starmer's doing. I don't
want to be a part of the strait versus the
economic reality that everyone's paying more for oil and guess
and maybe the fertilizers a problem as well. How does
he square that circle?
Speaker 2 (02:37):
Yeah, well, here in the UK we've got local elections
in early May and they're very important in understanding the
background to your question because it's widely assume that the
Labor government will do very badly in the local elections,
particularly in Wales and in Scotland, and that could trigger
basically a challenge to Starmer's leadership and maybe even need
(03:00):
to change in Prime minister later this year. Not guaranteed,
but that's where the thinking has been. But the general
public in the UK has been very anti shall we say,
Donald Trump, So Sarma is trying to play to that.
But the challenge is that in terms of diplomacy and
in terms of actual defense, the UK has become very
reliant on the US. So it's difficult for the UK
(03:22):
to fully divorce itself from what's going on in the States,
and in some respects need to actually be supportive of
the US. To actually not support the US because of
near term politics could in many people's eyes, create longer
term problems. But putting it all together, what we have
in the situation is that when you look at it
from an economic perspective, there are no easy wins for
(03:44):
the UK, and it's likely that growth will be low,
inflation will rise, and unfortunately, unemployment, which is about five
point four percent, could head even higher. So it's not
a great backdrop and similar to some respects to some
of the problems you're facing that home in New Zealand.
Not the same scale, but similar sort of storyline.
Speaker 1 (04:01):
The miller band argument over renewables versus the Trump argument
iver Drill, Baby Drill. Where does the public sit.
Speaker 2 (04:09):
Well, the public's pretty mixed, and it does vary by
age group. I tend to be in the camp that
you need to have a green agenda. You need to
be sensible about it. What this last seven weeks has
highlighted is that you need to get the balance right
between energy security, you need to get the balance right
between electricity prices coming down because the UK has electricity
(04:31):
prices which are four times higher than those in the States,
and also get the balance right with the green agenda.
So there's a lot of support for the green agenda,
but increasing skepticisms, sorry skepticism, because high electricity prices are
really causing the problem, not just for the cost of living,
but it's actually hitting in the industrial sector and leading
to companies, for instance in ceramics and chemical sector going bust.
(04:55):
So the thing is, it's okay to have this idea
that the green agenda is the be all and but
you need to actually be centible about trying not to
do that overnight. So the public is coming more immoral,
becoming more skeptical. But the underlying message for many people
is green matters, but let's get the balance right.
Speaker 1 (05:13):
If you're a central banker, what do you do with
all of this? Globally speaking? I mean, it's a miss,
isn't it.
Speaker 2 (05:18):
It's a mess. What the central bankers need to do
is actually see through the problem. Part of the challenge
for central bankers is this that they made a big
problem with mistake a few years ago after the pandemic.
They ease policy too much. They pumped up liquidity with
quantitative easing. So central bankers often feel that if there's
an inflation threat then they need to react to it.
(05:39):
The way the markets are interpreting it is this that
you need to differentiate between a central bank like the
Bank of England or indeed the Reserve Bank of New Zealand,
which has a single mandate to control inflation. Those central
banks are seen as more likely to having to raise
rates as opposed to a central bank like the US
Federal Reserve, which is a dual mandate to look at
jobs as well as inflation, and they're seen as having
(06:01):
a bit more leeway. But coming back to your question,
the central banks have a challenge because inflation is likely
to head higher in the near term before the growth
hit comes. But it's also very contingent on how long
the war lasts and how elevated NAG prices remain. So
in the near terms, some central banks might feel the
need to hip rates, but one or two of them,
(06:22):
and personally I think this is what the Bank of
England should do, is they should wait and see and
try and ride through the storm. Because effectively going from
expecting rate cuts to having no change is a tightening
in itself. So for the Bank of England and ones
who have the central banks that actually high rates. While
they might please the markets, it does come with a
big economic costs, particularly as further down the road the
(06:44):
economy will take a hit anyway.
Speaker 1 (06:46):
Great insight, Jared, have enjoyed the conversation Jared Llance, who's
the former chief economic advisor to Boris Johnson, candidate for
the governor of Bank of England. By the way, nuclear
is the other part of that whole power equations very
good place in the BBC the other day, faced with
new energy shock, Europe asks if reviving New Clear is
the answer. So the old New Clear is back and Britain,
as I told you on the program the other day,
(07:07):
announced the building of a facility in Anglesey. So it's
it's you dismiss it until you don'kay.
Speaker 2 (07:15):
For more from the Mic Asking Breakfast, listen live to
news talks.
Speaker 1 (07:19):
It'd be from six am weekdays, or follow the podcast
on iHeartRadio,
I got the big wake up call this week from
(00:01):
the IMF. Global recession is on its way. They argue.
If deals aren't done in the Middle East and Australia
isn't open, they cut their global growth forecast. Of course,
places like Britain were particularly hard hit. Jared Lyon's former
chief economic advisor to Boris Johnson, candidate for the Governor
of the Bank of England, is with us on all
of us. Jared, morning to you, good morning. Just a
very bad terms because I'm fascinated with Britain, the state
(00:25):
of Britain at the moment as you see it in
terms of welfare, in debt, the government. I mean, it
seems Missy, is that fear.
Speaker 2 (00:34):
Yeah, well, Britain is pretty much in the same stace
as the other major economies of Western Europe, which isn't
particularly good. We were heading into this year with pretty
modest growth, but on the positive inflation was forwarding. The
war has scuffered that it's going to hit growth, maybe
particularly hard. It's going to push inflation higher and instead
of UK interest rates being able to ford, they're likely
(00:56):
to increase and against this bat chop. It makes it
very difficult for the government to make an inroad into
what is the pretty poor economic picture and stagnant living standards.
In fact, living standards have been pretty stagnant now since
the two thousand and eight global financial crisis, so not
a great backdrop if we're looking for good news is
the fact that the French, the Germans, and the Italians
(01:18):
are pretty much in the same situation.
Speaker 1 (01:20):
Yeah, Rachael Rusel already had problems with the cost of
borrowing before this, and I'm assuming it's not got any better.
That message from the IMF that you cannot buy your
way using it out of trouble. Do you think that
lends in a place like Britain.
Speaker 2 (01:34):
Yeah, Look, the fiscal position that is pretty poor in
the UK, and the best way out of it is
stronger economic growth. We're not going to get that. What's
going to make it particularly difficult now is not just
that that tax revenues aren't going to be given a boost,
but also that interest rates maybe will have to head higher.
Before the war started, it seemed likely that UK interest
(01:57):
rates would fall twice this year. After the war started,
the market started to factor in higher rates. They've settled
down a bit, but still the likelihood is that the
Bank of England might be forced to raise rates. I
personally don't think they should, but that's the likelihood. So
coming back to your question, it's very difficult for the
government to pull any fiscal levers in terms of spending
or tax the balance.
Speaker 1 (02:20):
Starmer's been the star of the show, I guess in
the political sphere, in his relationship with Trump. What's the
balance between the politics of what Starmer's doing. I don't
want to be a part of the strait versus the
economic reality that everyone's paying more for oil and guess
and maybe the fertilizers a problem as well. How does
he square that circle?
Speaker 2 (02:37):
Yeah, well, here in the UK we've got local elections
in early May and they're very important in understanding the
background to your question because it's widely assume that the
Labor government will do very badly in the local elections,
particularly in Wales and in Scotland, and that could trigger
basically a challenge to Starmer's leadership and maybe even need
(03:00):
to change in Prime minister later this year. Not guaranteed,
but that's where the thinking has been. But the general
public in the UK has been very anti shall we say,
Donald Trump, So Sarma is trying to play to that.
But the challenge is that in terms of diplomacy and
in terms of actual defense, the UK has become very
reliant on the US. So it's difficult for the UK
(03:22):
to fully divorce itself from what's going on in the States,
and in some respects need to actually be supportive of
the US. To actually not support the US because of
near term politics could in many people's eyes, create longer
term problems. But putting it all together, what we have
in the situation is that when you look at it
from an economic perspective, there are no easy wins for
(03:44):
the UK, and it's likely that growth will be low,
inflation will rise, and unfortunately, unemployment, which is about five
point four percent, could head even higher. So it's not
a great backdrop and similar to some respects to some
of the problems you're facing that home in New Zealand.
Not the same scale, but similar sort of storyline.
Speaker 1 (04:01):
The miller band argument over renewables versus the Trump argument
iver Drill, Baby Drill. Where does the public sit.
Speaker 2 (04:09):
Well, the public's pretty mixed, and it does vary by
age group. I tend to be in the camp that
you need to have a green agenda. You need to
be sensible about it. What this last seven weeks has
highlighted is that you need to get the balance right
between energy security, you need to get the balance right
between electricity prices coming down because the UK has electricity
(04:31):
prices which are four times higher than those in the States,
and also get the balance right with the green agenda.
So there's a lot of support for the green agenda,
but increasing skepticisms, sorry skepticism, because high electricity prices are
really causing the problem, not just for the cost of living,
but it's actually hitting in the industrial sector and leading
to companies, for instance in ceramics and chemical sector going bust.
(04:55):
So the thing is, it's okay to have this idea
that the green agenda is the be all and but
you need to actually be centible about trying not to
do that overnight. So the public is coming more immoral,
becoming more skeptical. But the underlying message for many people
is green matters, but let's get the balance right.
Speaker 1 (05:13):
If you're a central banker, what do you do with
all of this? Globally speaking? I mean, it's a miss,
isn't it.
Speaker 2 (05:18):
It's a mess. What the central bankers need to do
is actually see through the problem. Part of the challenge
for central bankers is this that they made a big
problem with mistake a few years ago after the pandemic.
They ease policy too much. They pumped up liquidity with
quantitative easing. So central bankers often feel that if there's
an inflation threat then they need to react to it.
(05:39):
The way the markets are interpreting it is this that
you need to differentiate between a central bank like the
Bank of England or indeed the Reserve Bank of New Zealand,
which has a single mandate to control inflation. Those central
banks are seen as more likely to having to raise
rates as opposed to a central bank like the US
Federal Reserve, which is a dual mandate to look at
jobs as well as inflation, and they're seen as having
(06:01):
a bit more leeway. But coming back to your question,
the central banks have a challenge because inflation is likely
to head higher in the near term before the growth
hit comes. But it's also very contingent on how long
the war lasts and how elevated NAG prices remain. So
in the near terms, some central banks might feel the
need to hip rates, but one or two of them,
(06:22):
and personally I think this is what the Bank of
England should do, is they should wait and see and
try and ride through the storm. Because effectively going from
expecting rate cuts to having no change is a tightening
in itself. So for the Bank of England and ones
who have the central banks that actually high rates. While
they might please the markets, it does come with a
big economic costs, particularly as further down the road the
(06:44):
economy will take a hit anyway.
Speaker 1 (06:46):
Great insight, Jared, have enjoyed the conversation Jared Llance, who's
the former chief economic advisor to Boris Johnson, candidate for
the governor of Bank of England. By the way, nuclear
is the other part of that whole power equations very
good place in the BBC the other day, faced with
new energy shock, Europe asks if reviving New Clear is
the answer. So the old New Clear is back and Britain,
as I told you on the program the other day,
(07:07):
announced the building of a facility in Anglesey. So it's
it's you dismiss it until you don'kay.
Speaker 2 (07:15):
For more from the Mic Asking Breakfast, listen live to
news talks.
Speaker 1 (07:19):
It'd be from six am weekdays, or follow the podcast
on iHeartRadio,
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