Today Andy Silvester talks to City A.M.’s Economics and Markets reporter Jack Barnett. They go through the gloomy economic figures released by the ONS this morning measuring the economy’s performance, and explain what this will mean for rate hikes going forward.
And in the news: BT has confirmed a joint sports venture with Warner Bros Discovery, MPs have called for a crackdown on dirty money, and Volkswagen has stated that it will build 800,000 electric vehicles worldwide by the end of 2022.
Episode transcript (auto-generated)
Andy Silvester 0:07 Good afternoon from me, Andy Silvester, the editor here at City A.M. for the City View podcast, your daily evening commute hit of business news, plenty of it about today most of the focus it has to be said on the economy with some extraordinarily interesting GDP figures out earlier today. Jack Barnett, our economics and markets correspondent who is of course on put on quite a lot, but we’re here to talk about those in a bit and what it might mean for the future of the UK economy but plenty of corporate news around to today, starting with BT confirming its new sports joint venture with Warner Brothers discovery, the firm will after media speculation, join a 5050 venture with the US media giant which will bring together BT sports and Eurosport under one umbrella. And Bt is pushing to football of course started way back in 2012. It caught Champions League matches and Europa League matches from sky it’s been a big driver for them of broadband subscriptions. But the company has for an awfully long time been thinking that it was better to focus on its core objectives. And frankly, broadcasting Champions League games isn’t amongst those terms of the deal were undisclosed elsewhere. MPs today call for a crackdown on dirty money as they argued city bosses should face jail if they fail to prevent illicit cash from flowing through the UK financial system and launching an economic crime manifesto. The cross Party MPs for the UK and its overseas territories have played a key role in enabling kleptocrats worldwide, including those propping up the Kremlin. As they said the UK needs smarter regulations to tackle money laundering. Labour MP and former committee chair Margaret Hodge said that London is now the laundromat for washing dirty cash and tired of oversimplification day Margaret that will let you off, she argued a lack of proper enforcement it’s in the UK become the jurisdiction of choice for dirty money. Elsewhere Volkswagen has announced it will build some 800,000 electric vehicles worldwide by the end of the year, as it continues upon its environmental and financial strategy had a sales Hildegard Wartman said today that EU car sales will increase despite title deliveries falling because of macroeconomic and geopolitical issues. Of course COVID induced shortages being a key part of that home JD sports the retailers announced an increase in sales but said it also remained aware of market volatility and possible headwinds looming ahead forecast remaining as they were JD saying we’re conscious of the headwinds that prevail at the time, including the geopolitical situation of course supply chains, a bit of a mess for many retailers right now, as a result of the zero COVID policy in China gumming up those ports in East Asia. And dragging out the length of time it simply takes items to get from one side of the world to the other elsewhere. There’s really good news from super dry Granger the landlord has set aside more money for cladding remediation. And of course, the economic figures. I’m joined by Jack Barnett are economics and markets correspondent here at City a GDP figures when they pop out at 7am in the morning, always poured over by economists always forecasted by economists, somehow or other this morning has managed to be even glummer than we saw.Jack Barnett 3:13 Yeah, very much so. So we had fresh figures from the ONS this morning, measuring the economy’s performance on a monthly basis. And on a quarterly basis and depending on how which of those figures you look out, probably depends on how far you spat out your cornflakes this morning. So on a monthly basis, the economy actually shrank point 1% In March, that was below forecast, most people were expecting it to be unchanged. Worryingly, the ONS also downgraded their February measures for the economy’s performance 0.1 percentage points to unchanged, which means that all the growth that we had in the first quarter of this year, which was point 8%, which was also below expectation, it was all concentrated in January, mainly driven by Omicron restrictions, ending people going and going back out, etc, etc. And spending money. Looking into the weeds of those figures, there is some quite worrying signs of consumers already starting to pull back ahead of the cost of living squeezed getting even tighter. So we had a 2.8% drop in retail sales, we had an over 15% Drop in car repairs, which amounted to a point 2% Drop in the services sector output which is a really big growth engine for the UK economy. So it’s already looking quite bleak. And it’s probably going to get worse in the coming months. Andy Silvester 4:40 Yeah, I guess that’s all we’ll come on to some comments and a bit about what that might mean for rate rises going forward. But I’m just staying on the on the GDP figures for now. I do a LBC slot every day 7.25 and Ian Dale continually tells me that I am the you know, never confused with a ray of sunshine because I seem always to have bad news. But it is hard to shake it when you look at those figures, you know, there is no obvious reason that things will turn around. If people are already tightening the belts, it’s not as if the summer is suddenly going to change their mind. I guess the only possible thing you could look at, we’d say, well, if you’re spending less on energy, maybe that means you might go out again. But that’s really, you know, it’s around the margin stuff, isn’t it? Jack Barnett 5:28 Yeah, very much. So I know, you know, again, to play an even worse picture is that you know, the figures this morning, we’re we’re just covering March. So they didn’t account for the National Insurance hike that we’re currently experiencing in the moment. That’s going to add to the squeeze on households. Bear in mind, the the 54% uplift in the in the energy price gap also came in April as well. So all the cost of living pressures that people have been reporting about in the last couple of weeks or so particularly, since the bank put up those very gloomy projections last week, aren’t even accounted for in the figures in the ONS today. So you can imagine April’s print, and probably amazed print is going to trend downwards, as well as a result of consumption being a lot weaker than we had in the first quarter of this year. So are we thinking then that potentially q2, I mean, are you other economists thinking that potentially q2 could be our first negative growth quarter? Yes, so a quite a few analysts off the back of today, we’re projecting that so we had pumpkin, macro, who were quite a big city forecast there, pencilling in a contraction in the second quarter as our capital economics. And then the forecast that we had out from yesterday, for the National Institute of Economics and Social Research, the people who said that we’re having we’re going to have about 250,000 more people with destitution this year, there’s no more support. They have now said that the weaker GDP print for March, it’s actually raising the prospects of their forecasts for recession in the back end of this year has actually come a lot sooner. Andy Silvester 7:05 Yeah. Yeah. And I guess the problem for that is, you know, the sooner it starts, it sounds obvious. But the sooner it starts, you would think the sooner it ends. But actually, when you look at energy prices, when you look at inflation, actually, there’s no obvious sign that it’s cyclical, in a sense, but energy prices are going to stay high for a long time. And if that’s driving so much of the inflationary pressures that’s driving so much the uncertainty. We could be in one for the long haul, I suppose. Jack Barnett 7:30 Yeah, very much. So. And it’s, you know, it goes back to this this point of light of where the inflation shock is being sourced from. So it’s coming from, you know, it is a supply side shock. That demand is obviously quite high in the economy as a result of people still spending money off lock downs, but may mainly been driven by a shortage of energy or concerns about shortage of energy as the result of the Russian Ukraine war. And it’s very difficult to boost supply of energy and commodities quickly, because just it just takes a long time to get that production on line. So you can imagine that the price pressures were free, and now we’re going to eat anytime soon. Andy Silvester 8:06 For sure. No, yeah, it’s, it’s a bleak picture. Sorry, everybody, on a Thursday afternoon or Friday morning, whenever you’re listening to this, I promise you that we can just almost go out and spend some money. It’s your patriotic duty. Let’s talk quickly about rates because some interesting comments today from someone usually worth listening to. Jack Barnett 8:25 Yeah, so we had. So Dave Ramsden, who’s a member of the rate setting committee at the Bank of England, essentially warning that more rate hikes are very much on the way this year, the bank has raised rates of a record low point 1% to 1%, which is a 13 year high in the space of six months or so in response to what we’re now getting is a, you know, a sort of historic inflation spike at the moment, running a 7% is only going to trend higher. You know, the bank, the Bank of England on its own here, it’s also the Fed, and the ECB are now facing this really tricky trade off of how quickly do they go to tame inflation without adding more headwinds and more despair to the economy? I think what they’re very conscious of doing is delivering unnecessary damage and scarring to their economies by almost going too quickly on rate rises, when they’re experiencing, you know, inflation will naturally bring will naturally come down anyway, as people start to respond to higher prices by reading and spending that should call demand, then why should go lower? Think well, the bank is wary of doing is going well, we need to really, really, hike rates now. And then actually, if that delivers a weaker economy in the future, where is it left rates? A little bit lower in my in my actually protect the economy from some of the headwinds it’s facing? Andy Silvester 9:48 Well, yeah, I mean, that goes back to the question that you asked Andrew Bailey last week, I think, which was dodged with with more sort of skill and dexterousness than you might expect of a regulator turned governor. Yeah, the question is how much headroom does the bank have? How much everything does the bank have to raise rates to try and dampen inflation without just putting a boot into the British economy and weakening it in the long in the medium to long term, despite all of this should be borne out Boris Johnson this morning, so he was encouraged by the economic figures, which suggests to me that possibly was looking at them upside down or something. Because there is there there are very few chunks of light I think, as you say, it’s that demand destruction through inflation, inflation, probably the seeds of it, the seeds of its demise are actually within it itself. But it is simply a matter of a matter of time and frankly, global energy markets while truly outside of political control, perhaps Jack, let’s leave it there for now that we’ve taken everybody to tears already, so let them leave and listen to music or listen to an audiobook or something more cheery thanks, as ever, and that’s all from us. Since few podcasts honest there’s evening. Last for me this week. You’ll be joined tomorrow for our weekly tech special.