Dire BoE Forecast, ‘Gigantic Savings’ From Musk & Seeing Wood For The Trees
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This is the Bloomberg Daybreak Q at Podcast, available every morning on Apple, Spotify or wherever you listen. It's Friday the 7th of February in London. I'm Caroline Hepker. And I'm Stephen Carroll. Coming up today, Andrew Bailey says he's a very, very strong supporter of Labour's growth agenda.

as the Bank of England simultaneously slashes its growth forecast for this year. US Treasury Secretary Scott Besson tells Bloomberg Elon Musk is doing important cost-cutting work. Plus, seeing the wood for the trees. The EU wants to keep old trees standing in a bid to hit decarbonisation targets.

But forest owners aren't convinced. Let's start with a roundup of our top stories. The Bank of England has halved its UK growth forecast for this year and says the economy has a 40% chance of already being in recession. The BOE now expects the economy to grow by just 0.75% this year while also calculating a shallow contraction.

at the end of last year. The forecasts illustrate this dark challenge facing Rachel Reeves as she attempts to repair Britain's finances and reverse a decline in sentiment. Despite the gloomy outlook, Bank of England Governor Andrew Bailey endorsed the Chancellor's approach to boosting GDP.

I mean, I'm a very, very strong supporter both of the growth agenda that this government had, and by the way, what the growth agenda the previous government had as well. We've told the story quite a few times that the potential growth rates in the UK has been low since the financial crisis. And that obviously has an effect on our policy environment, and it has an effect on other policy environments as well.

and addressing those questions is critical. So very strongly agree with the Chancellor on this point. Now, what I will say is, of course, structural policies take time to come through. So when we're looking at, obviously, a two to three year horizon here, you wouldn't expect a lot of that to come through quickly.

Bailey's comments follow the bank's decision to lower rates by a quarter point to 4.5%. However, the BOE also warned it now sees inflation peaking at 3.7% later this year, a big jump from the 2.8% it predicted in November.

Worries that US President Donald Trump will impose tariffs affecting gold has led to weeks-long queues to withdraw the metal from the Bank of England's vault. Trump hasn't targeted precious metals specifically, but dealers are worried that they could be included in blanket tariffs that he is threatening. The Bank of England holds more than 400,000 gold bars worth over $450 billion.

Current prices largely on behalf, though, of other central banks and also a few key gold dealers. Bars at the central bank's vaults have also been trading at a discount to the wider market this week as withdrawal delays make gold at the Bank of England less attractive than billion held in more accessible commercial vaults.

The new U.S. Treasury Secretary is aiming to project a sense of normalcy after facing turbulence during his first two weeks in office. Speaking to Bloomberg, Scott Besant said his department are methodically pursuing its economic goals. Look, I think with the president's policies of energy dominance, deregulation and non-inflationary growth, I think that the tenure is going to naturally come down.

Scott Besant speaking there. Under his leadership, the Treasury is supporting Elon Musk's Department of Government Efficiency, which aims to identify wasteful spending and modernise federal technology. Besant insisted the Treasury payment system is safe, despite Musk's team gaining access to it.

Senior intelligence officials in the United States are concerned that they could be hit by the Trump administration's cost-cutting efforts. National security agencies are supposed to be exempt from the so-called efficiency drive being led by Musk, but CIA Director John Ratcliffe has offered policy

buyouts to his staff in what the agency said was an effort to sharpen its focus on priorities like China and help President Trump's overall efforts to shrink the federal workforce. The relationship between Trump and the intelligence agencies soured in his first term after they concluded that Russia had interfered in the 2016 presidential election to boost his candidacy.

Donald Trump has set out his tax priorities in a meeting with Republican lawmakers. The US president is seeking an end to the private equity carried interest tax break and an expansion to the state and local tax deduction, among other measures. According to the White House press secretary, Caroline Leavitt, Trump would like to see a sweeping tax bill passed this year. Details of a deal are expected to be announced as soon as today.

Amazon has warned investors on its results conference call that it might face capacity constraints in its cloud computing division despite plans to invest $100 billion this year. CEO Andy Jassy says that growth will be lumpy due to delays in getting hardware and insufficient electricity, echoing concerns of rival Microsoft.

Discussing the company's results, Dan Ives, global head of tech research at Wedbush Securities, told Bloomberg that the firm is still strong. I think if you looked up sandbag special in the dictionary, you'd see Amazon's ticker. Because look, the actual quarter beat on AWS, strength on advertising. And I think on the retail side, they have massive momentum.

So that was Redbush's Dan Ives speaking there. Amazon spent $26.3 billion in capital expenditures in the last three months of 2024, mostly on AI-related projects with Amazon Web Services. The stock has gained 8.9% so far this year after a 44% jump in 2024.

Those are our top stories. On the markets, we're looking at shares in Hong Kong up six-tenths of one percent. The Hang Seng Tech Index up by over one percent today, lifting Asian stocks in general. Selling pressure in Japan, though, where the Nikkei in Tokyo is down six-tenths of one percent. European stock futures four-tenths weaker. And on Wall Street, S&P E-mini futures are down by a tenth. The Bloomberg Dollar Spot Index a tenth of one percent higher. The pound at 124.22 against the dollar.

Now in a moment, we'll bring you more on how markets are reading the comments from the Bank of England, plus why EU climate rules are threatening to disrupt the forestry industry in Sweden and Finland.

But we have another story, always a story that catches our eye in the morning and, you know, gets us thinking. It is a victory for London cab drivers over navigation apps. I love this story. In case it was a doubt for anyone's mind, cab drivers are smarter than your navigation apps. That is essentially the conclusion of new research. I could have said that.

I told you this five years ago. Well, look, I mean, it's again a testament to the idea of actually learning something. The human brain is still smarter than AI is the conclusion of what I've taken away from, yeah, exactly, relief all around. What I've taken away from these research published in the Proceedings of the National Academy of Sciences. Essentially, it has used the example of London cab drivers and the knowledge test and how they have to learn, you know, essentially a mental map of London and

and how it actually can help AI algorithms to be trained to make them more efficient. Because the way, and the way they did this, they asked cab drivers to describe a route to go somewhere and essentially found that because of the way that you think about how you'd use certain junctions and using certain landmarks is different to how technology would process a route. And essentially, the cab driver's version was better.

Yeah, which I think is just brilliant, isn't it? I mean, that's why London, you know, invented the A to Z. It is an old city, a complex city. I had an A to Z when I first moved to London. You needed one. I unearthed it somewhere, I think, when I moved back after a long absence and realised I didn't need it anymore. I'm not sure whether we'll be saying this about AI in a year's time. But anyway, there we are. It is a lovely story that is on the Bloomberg Terminal for you. You can read it. Linda Poon's City Lab article on Bloomberg.com or on the Terminal. Well, let's bring you more now on reaction.com.

to the Bank of England's latest decision and commentary from the Governor Andrew Bailey as well, plus a little bit of detail on how markets are viewing those comments from US Treasury Secretary Scott Besant. Our Markets Live strategist Mary Nicola joins us for more. Mary, good morning. First on the Bank of England, Andrew Bailey cautioning against markets reading too much into the vote split and the decision when he spoke to Bloomberg. Did markets pay attention to the Governor?

Of course not. I think the fact that the member who was perceived as the most hawkish voted for a 50 basis point rate cut, that was a big shocker to the markets. And that's why they've moved.

in a very different direction than what Andrew Bailey was suggesting. But I think the biggest takeaway from what we saw from the Bank of England was the increase in inflation forecasts and the downgrade in growth. And that combination is really going to undermine the pound, especially if these expectations come to fruition.

Yeah, absolutely. We're already down a tenth of 1% this morning, 124.21 in terms of cable. What's the updated forecast then mean around the market expectations for the rate path going forwards? Yeah, so now we're looking at expectations are for about three more cuts over the next year, which is definitely more dovish than before the meeting. But the

But the risk is that they become more cautious, as Andrew Bailey had highlighted, especially given inflationary pressures. So it will really come down to what they see as a priority. Is it growth or is it inflation? Take, for example, here in Asia, it seems like growth has won out. So, for example, RBI has cut

because of growth concerns. We've seen other central banks as well do the same. So either way, weak activity, though, and higher prices is really going to keep sterling assets under pressure. Yeah, indeed. And of course, a big focus, too, for the government here who are trying to kickstart their growth agenda. Let's turn to the US, Mary. Scott Besson's interview saying he favours a strong dollar and won't alter the US debt issuance plans. Has that given investors enough certainty about the approach of this administration?

So far, I think he's done a good job in placating the market's concerns. And of course, because we've heard about President Trump discussing his concerns

his woes about the U.S. dollar strength, reiterating that strong dollar policy is absolutely key when it comes from the U.S. Treasury Secretary. But still, I think what investors are going to look for from the Treasury is more on fiscal policy and the government's intentions on spending. That's going to be the critical support because fiscal profligacy is not going to go unnoticed by a lot of the bond vigilantes that are out there.

Yeah. And it's jobs day, of course, today. The data due out later. What are we expecting? So, consensus is looking for 175,000 jobs were added in January. I think to sustain an equity rally, investors are going to need to see a number that's not too hot, that could delay rate cuts even longer, and not too cold, that dampens the outlook for growth or raises concerns about a recession.

The other thing, too, to watch out for today is the revisions to the establishment and household surveys, because that's really going to reveal how weak or strong the labor market actually was over the last year.

Okay. Mary Nicole, our Markets Live strategist, thank you very much for joining us. This show is sponsored by BetterHelp. BetterHelp has been revolutionary in connecting people to mental health services. Using BetterHelp can be as easy as opening your laptop or your phone and clicking a button, and the session begins.

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Now, in Sweden and in Finland, hundreds of thousands of people make their living from forests. But their way of life and this important industry is under threat from EU climate rules, which aim to protect biodiversity and reduce carbon emissions. Our reporter Jonas Ekblom joins us now for more on this story. Good morning, Jonas. Thanks for being with us. For context, just how important is the forestry sector in Sweden and Finland?

It's hard to underestimate if at least the cultural significance of the forest industry, like the forest industry plays a key role in the early industrialization of Sweden. And still today, it's very much a core industry. And a lot of Swedish towns and like a lot of big Swedish companies provide the world with their pigments.

paper products. For example, there's companies like Essity who makes tampons and diapers as well as other hygiene products which comes from Swedish trees and around 25% of the world's milk cartons come from Sweden. Jonas, talk us through then the EU rules that are causing trouble for this industry. Which ones are they unhappy about?

The one that draws particular ire is called LULUCF, which is the climate regulation which prescribes that European member states need to increase their carbon sink. That is like how much carbon the nature in their country needs to take up from the atmosphere. And the easiest way to do it, most straightforward way to do it, is by not cutting down trees. And all of these LULUCF targets, Sweden and Finland, for example, like in our story, like the rest of Europe,

Europe has pledged to do this by 2030 and they need to do it now. So the big conflict is between the EU who needs the climate carbon amount saved now and you've got the industry who argues that we should cut down the trees to make paper cups and replace plastic cups and bioenergy instead of fossil fuels.

Beautiful pictures and images in the story that you've written give me a real sense of the kind of cultural heritage and what it means. Do the businesses not support, though, the goals of cutting carbon emissions?

They do. I think it's just a big question, particularly from these bigger players who produce the pull and the paper products. They often like to tout their so-called substitution effects, which is like how much fossil resources are we offsetting by using trees instead. Conservationists, on the other hand, argues that the climate benefits are greater by just letting the trees down. And then there's also uncertainty.

a larger conflict about the way these forests are managed, for example, like most is logged by so-called clear cutting is when you cut certain acreage, for example, and you cut down all the trees in a certain plot and that has its own biodiversity challenges, for example, which is another reason why the conservationist group and the EU is trying to make policies more strict in this area.

I mean, the national governments in Sweden and Finland had a part in the passing of these rules as well. How are they playing this, given the importance of this industry in those countries? Sweden, in particular, like to play themselves as like a very measured EU member state, not like the one who, for example, is like, you know,

know very anti-eureka relations but here is one where they vehemently argued that the eu should not regulate the forest industry and traditionally it hasn't the eu comes head to head with sweden here in this case because it's not usually been an area which has been traditionally covered by eu policy it's rather been something which has been like a so-called national competency but the

With these new climate regulations, the EU takes a very holistic approach to nature, environment, climate and all of that. This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hipker. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe.

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