00:00Nina, great to have you around the set this morning on what has been a big week, of course, for the UK.
00:05Things have settled to some extent. We've got the detail. It was a complicated budget.
00:09There was a lot to work through. Where does it leave us in terms of your kind of key takeaways,
00:15particularly through the lens of the future growth trajectory for this UK economy?
00:20Well, I'm surprised that only 48 percent of people in the YouGov poll were left unhappy.
00:25And the reason that I'm surprised with that is that I think in terms of the growth trajectory, it leaves us on a very, very low growth path.
00:33I did watch with a lot of surprise as when the chancellor announced that the OBR had upgraded its growth forecast for this year to one and a half percent,
00:42that a lot of MPs in the chamber cheered so loudly because I don't think growth of one and a half percent is anything to cheer about.
00:48We've had higher growth in, I think, 25 of the last 35 years.
00:53It's not that good relative to other advanced economies.
00:56So we are on a quite a modest growth path.
01:01And I think the chancellor didn't really do anything to address that.
01:04The OBR has been accused in the past of being overly optimistic in its forecast.
01:08Is one and a half percent growth for next year overly optimistic or does that align with your analysis?
01:13I think for next year, they're actually expecting a slightly lower growth rate.
01:15I think we are slightly lower, but not too far off.
01:18The OBR has actually now significantly downgraded its expectations, a lot of it to do with them finally coming to terms with the fact
01:25that productivity isn't going to dramatically and magically improve in one particular year in the near future.
01:31So actually, their forecasts are now much more aligned with private sector forecasts.
01:34So when the chancellor spoke to Lizzie Burden, our Lizzie Burden, she said that the OBR hasn't been taken into account trade deals
01:40that have been struck with Europe, with the U.S., with India, does that become a material impact?
01:46Is that a fair take from the chancellor that there will be a growth impulse from trade deals that haven't been factored into these forecasts?
01:53I'm not sure that that's going to be the magic key that unlocks growth.
01:57It could have some limited upside for sure, but I'm not sure if that's the one thing that's sort of suppressing OBR's outlook.
02:03Well, what about productivity and AI? Are we overlooking the impact that AI could have on productivity in the U.K.,
02:10particularly when it comes to financial services in the years ahead?
02:13Well, I think that's a question sort of across a lot of advanced economies, not just the U.K.
02:18How optimistic should we, you know, is AI going to save us all?
02:21I think if it's going to sort of boost performance anywhere, it's going to sort of start in the U.S.,
02:27and then the U.K. tends to be a little bit behind sort of in adopting a lot of advancements that the U.S. is at the forefront of.
02:34So I think we here in the U.K. can sort of look to what's happening in the U.S.,
02:38see how it's going over them for them in terms of the impact of AI,
02:41and then project that here sort of a year or a couple of years down the line.
02:45Yeah, well, without the economic impulse of massive spend on data centers,
02:48because we're simply not getting that to the same, anywhere near the same degree as they are in the U.S.
02:53When it comes to the housing market, we had this, of course, so-called mansion tax on properties over 2 million.
02:59What is it, about a third of London homes or something?
03:02What does that do to the property market of the U.K. at a time when prices are under pressure?
03:09That is just such a silly proposed tax.
03:12I have yet to come across an economist that thinks that the way of the structure of that tax,
03:17what has been proposed, is a good idea.
03:20It's just so obvious it's going to create these bulges.
03:23Nobody's going to want a valuation of 2 million.
03:26A lot of properties are going to indefinitely be sort of valued at 1.99.
03:30I think it's going to create a lot of work for the government.
03:32I can imagine a lot of people claiming that they want re-evaluations if they're right around the key figures.
03:39And actually, the projections for how much money this is meant to raise, so the projection, I think, is 0.4 billion in 2029, 2030.
03:48That's nothing.
03:48So I actually think somewhere in there, there actually is an implicit acknowledgement that this is going to not work very well.
03:54Apparently, there's going to be an exemption for people that are asset-rich, cash-poor,
03:58that maybe they can pay it only after they will either sort of move on or pass away.
04:04So it just seems like it's not going to raise a lot of money, be incredibly complicated.
04:08I'm a little bit sceptical if we're ever actually going to see this thing implemented.
04:11OK, that's on the housing market.
04:12Was there enough deflationary measures in this budget to give a glide path for the BOE on lower rates through 2026, beyond December?
04:20I do think the Chancellor is right and has acknowledged the inflationary dynamic,
04:24and maybe that is one of the sort of excuses for not having more pro-growth policies.
04:28I do think in December we're going to see a cut.
04:31But I do think in the immediate future what the Chancellor has announced is going to all else equal be a little bit deflationary.
04:39But, of course, that's coming on the back of the very inflationary nix rises,
04:42which we saw earlier and which are very much feeding into inflation now.
04:46So overall, I don't think the government has in totality, this government, been that actively, you know, had their eye on inflation.
04:54But now what they've done most recently I do think has paved the way for a cut next month.
04:58So we're cut next month, but into 2026. Where do the rates end? Are we getting sub 3.5%?
05:04Do we get to 3% in the end of next year?
05:07Given the information, given what we have, the data we have right now, how far can the BOE go on rates?
05:12I would expect another couple of cuts in 2026, and then I would expect a normalization of around 3%, sort of somewhere into 2027, 2028,
05:21which is also when we're expecting inflation to approach the target. So we're still a couple of years away from that.
05:26But I do think the government is very, very now concerned on inflation, especially post the nix situation.
05:33So I do think the path I mean, we've we've had a lot of shocks lately, but barring sort of anything else,
05:38I do think we are sort of on an OK path at long last.
05:41And just before we let you go, the inflation target, 2% for the BOE. When do we hit that?
05:45We're expecting it at early 2028. Early 2028? Not until early 2028 to hit that target.
05:53The ECB is already there, of course. Nina, thank you very much indeed.
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