Weekend Edition: Less autonomous central banks and the return of inflation
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Why is the Bank of England shifting focus from inflation to preventing an economic collapse?
The outlook for the UK isn't great. According to our guests today, government spending hasn't been stripped back enough, which places the UK in a very precarious financial position. And he reckons the Bank of England might be more interested in keeping the c economy from faltering than controlling short-term inflation. You know, like central banks did during the pandemic. But the UK isn't the only place where that's happening. Isn't that what President Trump wants the Fed to do as well? Cut rates to grow the The economy, irrespective of inflation. So, how do we get out of this mess? That's this week. The morning call from NAB with Phil Dobby. The weekend edition. Well it is a while away, the twenty sixth of November, but in the UK there's a lot of speculation about what the Chancellor Rachel Reeves will deliver in her next budget on that day, if it is indeed her budget, because the Prime Minister, I think for the first time ever, has enlisted his own economic advisers, led by a former Deputy Governor of the Bank of England, rather than just nipping next door to find out what the Chancellor thinks.
And there's a lot resting on this budget. The economy is uh showing low growth with high debt. Uh the GDP growth forecast uh it is just one point two percent this year. The government debt is about ninety-six percent of GDP. There's very little business investment happening, borrowing costs are rising, thirty year guild yields have reached almost five point seven percent, the highest since the late nineties. Uh some people are actually going back earlier than that. Uh Kemi Badnock, the uh Uh Troy Leder over there has said that there are eerie parallels with nineteen seventy six, the sterling crisis that saw the UK borrow from the IMF to prop up the pound. But surely that's just scaremongering. So let's talk about debt, not just in the UK, but Europe and the US as well, and its impact on monetary policy.
Let's talk to Paul Mortimer Lee, he's an independent economist, a fellow of the National Institute of Economic. Economic research in the UK. He's based in the US though. He's a former chief economist for North America, BNP Peruba, and he held senior roles at the Bank of England and the IMF as well. Now you wrote recently, Paul, on your Substack, that actually an IMF bailout might do the UK the world of good. But you know, I mean, going back to the seventies, I mean inflation was really out of control then. The pound had lost twenty percent of its value in just a few years, now the pound is around a ro uh round a a dollar thirty five, it's near the top of its fifty two range, so no big descent like we saw in the seventies and and eighties.
So it's not the same, is it? 'Cause it's not currency crisis that we're seeing.
Absolutely. There there's not a currency crisis. Uh what there is is a crisis of governance, uh that the government doesn't seem to be able to pass the measures to keep the budget on track. And that's partly because there'd been a huge rebellion by its own MPs, um, who refused to countenance cuts in welfare payments. Uh so that that's a big problem. And the Chancellor has tied her hands behind her back. uh by promising before the election of no tax increases on working people. So You've got you've narrowed the tax base enormously. And, you know, if you raise taxes as she did uh payroll taxes on businesses last year, then you hurt growth and you hurt job creation and that hurts tax revenues. So she's painted herself in a corner there.
Right. So it's only down from here then. And and then so you're and and so the the increase that we've been seeing in thirty year yields, you could see that feasibly that's just going to increase because there's just not that confidence anymore because we're not seeing the growth and we're seeing no controls in spending. So high yields is going to be the price for that. Is that what you're expecting?
Yeah. I mean, you know, the the UK as the the yields have gone up partly because global yields have gone up. Um the you know, historically the UK is
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Chapters
8 chapters
1
Why is the Bank of England shifting focus from inflation to preventing an economic collapse?
0:01–3:54
2
How could an IMF bailout change the UK’s fiscal outlook and inflation trajectory?
3:54–8:08
3
What are the implications of rising UK gilt yields and a weaker sterling for investors?
8:08–12:17
4
Why might central banks prioritize growth over price stability in the current environment?
12:17–15:49
5
How could a softer U.S. Federal Reserve policy trigger global inflation and higher borrowing costs?
15:49–18:52
6
What lessons can be drawn from Europe’s debt management and the risk of a sovereign debt crisis?
18:52–22:34
7
How might higher inflation become the new normal over the next decade and what does that mean for investors?
22:34–26:17
8
What role could stablecoins play in financing U.S. debt and reshaping global monetary dynamics?
26:17–29:52