Loading summary
Transcript50 lines
- [00:00]
Chase Business Representative
Being a small business owner isn't just a career, it's a calling. Chase for Business knows how much heart and effort go into building something of your own. Manage all your business finances, from banking to payments to credit cards, all in one place with their digital tools. Plus access online resources designed to help your business thrive. Learn more@chase.com business chase for business Make More of what's yours the Chase Mobile app is available for select mobile devices. Message and data rates. May apply JP Morgan Chase Bank Naomi Member FDIC Copyright 2025 JPMorgan Chase &.
- [00:36]
Hiscox Insurance Representative
Co. Hiscock Small Business Insurance Knows there is no business like your business across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online'@hiscox.com that that's his c o x.com there's no business like Small business. Hiscox Small Business Insurance A great presentation.
- [01:09]
Canva Representative
Can be the difference between success and failure. The difference between a good presentation and a great one. That's Canva. Canva brings your ideas together in one place with one powerful app. Use AI to move faster. Collaborate easily because great things happen when people create together. No wonder 95% of Fortune 500 companies use it. Canva lets you bring your big ideas to life as fast as you can think of them. Put imagination to work@canva.com.
- [01:40]
Hiscox Insurance Representative
Bloomberg Audio Studios.
- [01:42]
Dan Hanson
Podcasts Radio News.
- [01:49]
City of London Announcer / GSK Representative
Welcome to the City of London.
- [01:51]
Dan Hanson
The City of the City the City of London.
- [01:53]
Francine Lacqua
The next station is Bank. Please mind the gap between the train and the platform.
- [02:00]
City of London Announcer / GSK Representative
The financial heart of the country.
- [02:06]
Francine Lacqua
The City.
- [02:07]
Hiscox Insurance Representative
The City.
- [02:08]
Francine Lacqua
Welcome to in the City.
- [02:11]
Stand clear of the doors please. Welcome to in the City. Each week we unpack a story that's crucial to the world's financial capitals. I'm Francine Lacqua and on this episode, how Trump's tariffs threats are a major headache for the UK's Keir Starmer. Over the weekend President Trump announced tariffs of 25% on Mexico and Canada. Then on Monday, following conversations with the leaders of those two countries, the tariffs were actually delayed by 30 days. What should we make of these head snapping reversals? Could it be that US Tariff policy is actually being used more as an all purpose negotiating tool rather than a trade policy instrument?
- [02:49]
It will definitely happen with the European Union, I can tell you that, because they've really taken advantage of US and UK is out of line. But I'm sure that one I think that one could be worked out. Prime Minister Storm has been very nice. We've had a couple.
- [03:03]
You just heard from Trump a statement he gave outside of Air Force One putting the EU on notice. So how does the UK fit into all of this? Joining us in the London studio is Dan Hansen. Dan is chief UK Economist at Bloomberg Economics. Dan, thank you so much for joining us.
- [03:16]
Dan Hanson
No problem at all.
- [03:17]
Francine Lacqua
There's so much. There's so much to talk about. I feel like, you know, it's just been a whirlwind of news of tariffs, of concerns about the trade war since Trump got inaugurated. And of course, the UK is also in the middle of this.
- [03:29]
Dan Hanson
Yeah. I mean, you will go to bed every night, don't you? And you wake up in the morning to a new set of headlines and it feels to me like for the next four years we're just going to have to get used to that and just sort of react on the fly every morning to what he said, basically, and try and work out the implications. And I think that the real lesson is sort of what's the really difficult thing to know is how persistent and how long these changes are going to last for. Because obviously we've had all these tariffs, then, no tariffs, and you can have them for a day, you can have them for hours, you might have them for years. And sort of assessing that in the context of what we have to do, which is the economic outlook, it's just very, very difficult.
- [04:09]
Francine Lacqua
Yeah, it's hard because we started the week with this threat of tariffs against Mexico and China and Canada and. And then Mexico and Canada basically got a 30 day reprieve. But 30 days is not long. I mean, it's around the corner. And so how do you model that?
- [04:25]
Dan Hanson
I mean, you can't really. And I think what it reminded me of was the Brexit negotiations you had, if you remember Theresa May, you have Boris Johnson going to Brussels and you had these deadlines constantly being pushed. And I think the lesson from that period and also the lesson from Trump's first time in office, is that actually maybe the biggest impact on the economy of all these things is uncertainty. It's not necessarily the tariffs themselves, because as you say, they can be suspended for 30 days and they can come in, they may be suspended further down the line, but the constant in it all is this uncertainty. And maybe that's the thing that is the weight on economies and the thing that we sort of have to grapple with and attempt to factor into our forecasts.
- [05:11]
Francine Lacqua
But how does the central bank deal with it, because tariffs could also be inflationary, even if they're short lived, at.
- [05:18]
Dan Hanson
Least from thinking maybe about the UK specifically. Obviously at the moment tariffs have been avoided. So I think if you're sitting in the bank of England, you're thinking, well, the rest of the world's going to grow probably a bit more slowly because of tariffs. The eu potentially, if tariffs go there, the US certainly it's possible you have the uncertainty impact as well. And then it's also possible that you get a lot of trade diversion. So basically from China, for example, if goods from China suddenly wash up on the UK shore and they're a lot cheaper, then the UK ends up importing quite a significant amount of disinflation, which in the context of what we've experienced over the past few years, that would probably be quite welcome for consumers. So actually through that lens, the tariff story is possibly disinflationary. But you're absolutely right, there's another world where the US puts tariffs, say on the uk, the UK then retaliates, and then there is an inflationary impact. Of course, you're absolutely right. And we already know that inflation this year is almost very likely to remain above target for the course of the year. So it's just another headache for the bank to grapple with.
- [06:32]
Francine Lacqua
Dan, can you talk to us a little bit about the dynamics of the UK economy and why it could avoid tariffs from the us? Because I found this quite confusing. Three weeks ago, Elon Musk was bashing Keir Starmer and saying he's the worst, he has no idea what he's doing. He pushed all of the stuff that was untrue from the far right. Elon Musk, that is. And then we heard this week Donald Trump being softer on the UK because they don't run a current account deficit.
- [07:00]
Dan Hanson
Yeah, and that's exactly. I mean, most of the trade we do with the UK does with the US is services and we have a big trade surplus with the US in services. But it gets really into the weeds because if you look at the UK data, the UK has a trade surplus with the US in goods. But if you look at the US data, the UK has a trade deficit with the US in goods. And I haven't seen a good explanation for why that is the case, unfortunately. But to the extent that the U.S. is going to look at its own trade data, that is why you might believe that the UK will at least be lower down the list when it comes to who's going to be hit with tariffs. I mean, I think there are sort of broader considerations as well in terms of Trump clearly doesn't like the US Running trade deficits with countries. We know that. But there are also points about defense spending where the UK Seems to be a little bit more favorable, at least relative to Europe. There are things around digital services, taxes and things like that. And I think when you listen to what he said earlier in the week about the UK being out of line, maybe it's there that he's thinking, maybe if Starmer agrees to lift defense spending a bit, maybe there's something on digital services tax, maybe that will be the trade that the UK does.
- [08:25]
Francine Lacqua
This is why it's quite difficult to read, is that Donald Trump could be using it to get something in return from the UK either domestically or geopolitics.
- [08:35]
Dan Hanson
And the lesson from the past week is that that is, for now, why tariffs are being used. It's as a negotiating tool. It's not really to address what I would call structural trade dynamics, to really shift the pattern of trade around the globe. It's to get something out of the country that the tariffs are being slapped on. So that's the lesson so far. Of course, that could change, but at the moment, it feels like it is a negotiation.
- [09:06]
Francine Lacqua
So I want to talk to you about the EU and the fact that the EU is probably next when these tariffs from Donald Trump hit. The UK has said that they want a closer tie with the eu. So how does that impact the UK Economy?
- [09:19]
Dan Hanson
I mean, it's really difficult, isn't it? And I think I was just trying to, before I came on here, I was just thinking, how does Starmer thread the needle? Because on the face of it, the EU is probably the right place to focus in terms of simple, a very sort of straight economic look at things. It's much closer to us. We trade a lot more with Dee. But there are obviously constraints, things like we're not going back to the single market, at least anytime soon, it appears, not going back into the customs union anytime soon. So people talk about the benefits of having a closer relationship with the eu, but I think the thing you have to remember is the ceiling, the government has put a ceiling on the ambition that it has. So the ultimate benefit of what could be got out of a negotiation with the EU in terms of the economic benefit isn't sort of going back to the single market, going back to the customs unions, which is what most economic models would tell you is the sort of big economic prize. Government's revealed preference appears to be to focus on the European Union and potentially with Trump, give him something in return for not having tariffs placed on us. Whether that's defence spending, as I say, whether it's digital services tax, who knows? One sort of observation in Rachel Reeves's speech last week, I thought it was really interesting. She spoke about the US first before she spoke about the European Union. Now, that is sort of something I observed and thought, oh, that's quite pointed, I thought. But perhaps that was just me reading too much into it. But I think they are very nervous about upsetting Trump, clearly, and understandably so. But it feels like the way things have gone this week, and I know Starmer has been in Brussels, the way things have gone this week is that the EU is the priority. And that's what they sort of. They said in their manifesto as well.
- [11:11]
Francine Lacqua
It's really funny. So I had the shortest TV interview of all times with Keir Starmer, because he was in our building. And so I had like three and a half minutes and he was very uncomfortable when I asked him how he would straddle the US and the eu, because I think they just don't want to upset the bear, right? They don't want to upset Donald Trump. And so everything they do is kind of very careful so that you're not in the limelight, you're not, you know, you're not the focus of the Trump administration because you don't want to be slapped with extra costs.
- [11:40]
Dan Hanson
No, that's exactly right. And I think you. I mean, you've hit the nail on the head that I think just keeping your head down and keeping quiet is the best thing they think they can do at the moment. And it probably is. I mean, we always knew when Trump came in it was going to be about China, it was going to be about Mexico and Canada, and at some point it's, you know, the European Union, as you said, is next. The worry from a UK sort of economic perspective is that the tariffs go on. Europe. Europe slows. When Europe slows, the UK slows quite dramatically. So there is that interlinkage there. And of course, that is something that not just the government, but the bank of England as well, will be watching very closely. So there's that dynamic as well. But I think you're right that the best thing, I think all the noises Trump has made about the UK have been relative to noises that have been made about China before now.
- [12:36]
Francine Lacqua
And for now.
- [12:36]
Dan Hanson
For now, yeah. But I'm, you know, it's glass half full stuff, isn't it? There have been some, you know, Relatively positive noises, you know, we're out of line in his words, but it can be sorted out. I think that's they were the words he used. So fingers crossed that that's what happens, you know.
- [12:52]
Francine Lacqua
So the government is trying to talk up the economy now after frankly talking it down, you know, in October and that was clearly a mistake and I think they even recognize that. So if you're trying to say like, look, this is a great country, invest, but then demand is softening and capex is not really picking up because people are worried about trade in general, what does that look like?
- [13:12]
Dan Hanson
Well, that goes back to the point about uncertainty, doesn't it? And that's the weight that this will, everything that's going on in the world, that's the impact it will have, it'll show up in capex. The thing that I'm absolutely astounded by with the UK economy is the consumer actually, because there is so much caution amongst consumers. So saving rates are very high, at least if you compare them to history. Consumer confidence is low, much lower than you would expect it to be with real wages growing. The unemployment rate is very low, at least again compared to historic norms. So I think there is this potentially this structural change in the perception of risk in the UK about spending and that is showing up, as you've just said, in demand and that makes it very, very difficult. And it then gets to a place with fiscal policy completely constrained, which we know about. You end up in a world where the only game in town is the bank of England and lowering interest rates, but against that you've got inflation that's still above target, so it's a very, very difficult balance. And the underlying story as well, which we've spoken about at length before, but the underlying story about the supply capacity of the economy, that's the thing, the real sort of question mark and it's the thing that Rachel Reeves is really focusing on. She's not focusing on stimulating the economy through demand, although there was some extra government spending in the budget that was obviously offset quite significantly by the rise in national insurance contributions. The thing that she's been focusing on over the past few weeks to try and change the narrative is the long term trajectory of the economy. The problem is you can talk about all that stuff, but if the data keeps rolling in and the economy's stagnating, it's very, very difficult to sort of shift perception. And going back to where we started with the consumer, you need that shift in perception to get people spending. Doom loop's a Horrible term. And it's not something that I sort of sign up to at all. But that's the world where you need that sort of catalyst to get the economy moving again. And at the moment it feels like a lot of focus is being placed on interest rates. But the scope for interest rates to fall dramatically is fairly limited, I would say.
- [15:29]
Francine Lacqua
Yeah, it's almost like a self. It could be a self fulfilling prophecy and it's only like what, three and a half weeks ago that there was this meltdown in UK guilds, albeit started in the US with Treasuries, but we really felt it right in the uk and all the papers had a doom and gloom outlook.
- [15:44]
Dan Hanson
Yeah, they did.
- [15:45]
Francine Lacqua
That certainly doesn't help with consumers.
- [15:46]
Dan Hanson
No, it doesn't. And that feeds back. If the market believes that interest rates are going to have to stay high for longer, that feeds into mortgage rates and you end up in a world, as you say, where it becomes a self fulfilling prophecy. So there is a lot of focus on the UK when, because of the sensitivity of the fiscal position to interest rates, I think the UK sometimes shoots itself in the foot by being too honest about some of these things because it's not, if you look at it compared to other G7 countries, the level of debt as a share of GDP isn't completely out of. We're not sort of out of whack with everyone else. It's just that I think there are concerns about mainly the amount of headroom that Rachel Reeves has left herself against her fiscal target. It's just not very much and it can easily be, as we saw, as you say, at the start of January, it can easily be wiped out in a sort of movements in yields over a few days. So looking forward to the March fiscal event, I don't think it's going to be a particularly comfortable one for her, having set out her stall to say we're going to do one fiscal event a year where we only change tax and spending once a year. It seems quite likely to me that she's going to have to do something if she wants to effectively put a down payment on financial market credibility and get back some headroom, get back some fiscal space.
- [17:09]
Francine Lacqua
Dan, is it because the nature of investors are different? I really take your point that actually, you know, on paper, if you look at G7 countries, the UK doesn't look that bad. But is it because it's more reliant on outside investors, international investors, and so they feel the swings more?
- [17:26]
Dan Hanson
I mean, the UK has run a current account deficit since the early 2000s. So it's not. And to be honest, it was a real issue. Sort of 2013, 2014 to 2019, we were running a current account deficit of sort of 5, 6% of GDP and the glare was sort of on that bit of the sort of imbalance in the uk that was the bit that investors were focused on. I think at the moment it's this mix, this. I don't like to use stagflation, but it's a sort of shortcut to what I'm trying to get at of sticky inflation. And this point about structurally weak growth, high interest rates in that environment makes your debt dynamic really awkward. Now, as I say, it's not significantly worse than anyone else's, but I think one concern investors have is around the fiscal forecasts that the OBR has put out and there's quite a lot of optimism in there built into those. And I think there is just a broad question about is this borrowing forecast actually realistic or is the scale of issuance just going to be a lot more than the OBR is telling us? Because it has been sort of overly optimistic about the medium term outlook and that matters a lot for the scale of issuance that comes down the line. So I think that's probably where the sort of eye of financial markets has been caught recently. I think there is some truth to what you say about the UK reliant the Mark Carney phrase, relying on the kindness of strangers. But it has, it has done that for an awful long time and it doesn't feel like it's become significantly worse, say over the past six months.
- [19:11]
Francine Lacqua
What can the BoE do again? We kind of see the UK at its best when all the institutions try and come together somehow. Could that happen now? Regulation, monetary policy?
- [19:23]
Dan Hanson
Yeah, well, I think there's definitely something to be done on interest rates. It feels to me that there is some scope to cut interest rates and support the economy. I feel they are rightly worried about inflation, but they also, and I sort of agree with this point, say they're quite a long way above the sort of neutral interest rate, the rate of interest that sort of doesn't speed up or slow down the economy. So marrying those two things up is quite difficult. So I think there is something to be said for rates coming down fairly significantly this year. We think maybe 100 basis points is in the realm of possibility. If things continue to sour, it could be more than that, I think. So that will be a really important tailwind to the economy. I do also think, going to your point about regulation and the like. I do think there is something to be said around this point around risk taking. I know there's a lot of concern that it will sort of create bubbles in the financial sector if the regulators aren't watching as closely, are we going to get a repeat of what happened in 2007, 2008? But I also think the UK does need to be a bit more a risk taker. Because if you think going back to this point about the source of all this weakness, which is the UK's dire productivity performance, you know, this sort of shuntarian idea of creative destruction and taking risk, that's what needs to happen. So you have to. There is a balance. Of course there's a balance. But I think sort of looking at that because of course it doesn't require fiscal spending because we know there's no fiscal space, but looking at these sort of supply side policies, it's really important to do that. And the hope is the combination of that harnessing AI, of course, as well, when that comes, as that comes, you know, that brings us sort of at least some sort of meaningful growth. Because at the moment it's this, we seem to go from year to year and we have discussion after discussion about, well, we won't be in a recession, is it going to be.
- [21:32]
Francine Lacqua
It's just anemic, it's just like blah.
- [21:34]
Dan Hanson
And it's been the same and I know we've been hit with lots of shocks, but it feels like something needs to change. And so this sort of out of the box thinking it needs to happen. And I think people, and we're sort of to some extent guilty of this. You just can't write it off out of hand because you need to give it a chance to work.
- [21:54]
Francine Lacqua
You hear that UK economy? It's Dan Hanson saying, let's go, we're ready, let's go. Thank you, Dan.
- [22:00]
Dan Hanson
No problem at all. Very well. Thank you.
- [22:04]
Francine Lacqua
Thanks for listening to this week's in the City from Bloomberg. This episode was hosted by me, Francine Lacqua. It was produced by Samar Saadi and Moses Andam with sound design by Blake Maples. Brendan Francis Newman is our executive producer. Special thanks to Dan Hanson.
- [22:23]
Hiscox Insurance Representative
How can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology insights and Support available at amazonbusiness.com@GSK, we believe that.
- [22:50]
City of London Announcer / GSK Representative
To get ahead of disease you need to understand its root cause. And that's why we combine our deep understanding of immune science with cutting edge technology. It helps us to create targeted therapies that match the right treatment to the right patient, transforming the lives of millions of by uniting science, technology and talent, we work tirelessly to get ahead of disease together. Visit gsk.com to discover more. As a contractor, I don't pay for materials I don't use, so why would I pay for stuff I don't need in my mobile plan? That's why the new My Biz plan from Verizon Business is so perfect. Now I can choose exactly what I want and I only pay for what.
- [23:29]
Verizon Business Representative
I need right now with my biz plan. Get our best price as low as $25 a line. Visit verizon.combusiness to get started today. New lines only. Price per month with five plus lines includes auto pay and paper free billing and promotional discount taxes fees, economic adjustment charge applicable. Add ons prices and terms apply. Guarantee applies to base monthly rate and stated discounts only. Add on prices. Additional offers end November 17, 2025.