Healey's First Budget Interview, Tech Rally Stalls, Fed Holds Fire

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0:12 It's Thursday, the 29th of October. I'm Caroline Hepkett in London. Coming up today, the UK Chancellor speaks to Bloomberg first the day after his budget. He says tough choices on spending are coming down the track. The tech rally sputters after Alphabet and Samsung disappoint investors and reignite fears over massive spending on artificial intelligence. And the Fed keeps interest rates steady as Kevin Walsh paves the way for hikes to come. Let's start with a roundup of our top stories.

0:44 UK Chancellor John Healey is defending his budget after being criticised for lacking ambition. He told Bloomberg that just because economists had judged his measures small, that doesn't mean that they won't have an impact.

0:58 In my view, you can't just measure a budget on the scale of the scorecard. So take energy. Yes, the headline measures are the household energy payment. But there's some big decisions that will lead to some fundamental shifts in the energy market and the energy system. So I've set out, for instance, that from today, the first priority of the government will be cheaper energy and cleaner energy will be one way that we can do that.

1:25 The UK Chancellor speaking to Bloomberg on Budget Day there. Healy raised taxes on UK banks to help fund a package of support on energy bills for voters. He warned of hard decisions ahead on Britain's spending priorities.

1:40 So we've demonstrated we can make efficiencies. We've demonstrated we can take tough prioritisation decisions. We've demonstrated also that we can, despite the pressures, control spending. All important, I think, groundwork for what the budget will then go into, which is the 10-year plan. And the 10-year plan, if you like, is the long-term view of the priorities for Britain. And that will frame the... multi-year spending review decisions that we take next year in that spending review itself.

2:11 Healy's budget is set to be followed in a few weeks by Prime Minister Andy Burnham setting out his 10-year vision for the UK. Gilts posted their smallest move on a budget day since 2020 yesterday, but the budget leaves little room for fiscal error. Now, the tech rally is stalling after two of its champions disappointed investors in earnings.

2:34 Alphabet missed its revenue targets, raising concerns that Google is losing ground to AI rivals. Scott Devitt of Rosenblatt Security says that's despite Alphabet pouring hundreds of billions of dollars into the technology.

2:48 It's about a 300 basis point miss in search. And also on that side of the business, margins missed as well. So for those that think there's a longer term threat relating to AI, this definitely feeds into the narrative. And I think that's the issue with the stock.

3:03 Rosenblatt Securities Senior Research Analyst Scott Devitt speaking to Bloomberg as Alphabet shares slid 10% in late trading. Samsung, on the other hand, saw its profits surge 15-fold. But those gains weren't enough to satisfy the market. Its shares fell as much as 5%.

3:19 On the news.

3:20 The two companies' results reigniting fears over whether massive AI spending will deliver results quickly enough to justify higher valuations. Federal Reserve officials left interest rates unchanged yesterday whilst reiterating their commitment to lower inflation. The FRMC voted 10 to 2 to hold its benchmark rate in a range of 3.75 to 4%. Speaking during the press conference that followed, Chairman Kevin Walsh said that policymakers will continue to analyse economic data.

3:52 What we decided to do was, to Colby's question, take stock of where we are, evaluate what we're seeing out the window, ask ourselves whether the period right in front of us is likely to provide more clarity on the appropriate protocol. My judgment, the judgment of my overwhelming number of colleagues, is that it would.

4:11 Fed Chairman Kevin Walsh there. He went on to underline the central bank's willingness to take action, pointing to last month's hike as evidence. Following the news, yields on two-year treasuries, which are more sensitive to Fed policy, fell four basis points to 4.7%. Now, the euro could be a risk as traders are reluctant to bet on more ECB hikes.

4:34 Brent crude futures have risen 18% so far this month. Meanwhile, investors see little chance of policymakers raising rates at their meeting today. Rising oil prices leave the euro in a precarious position, especially in the absence of expectations for higher policy rates in response. And speaking of oil prices, they have dropped towards $ 114 a barrel on fresh diplomatic efforts to avoid a renewal of U.S. strikes against Iran. Iran's foreign minister, Basaragchi, said that Tehran continued to give diplomacy a chance. Meanwhile, President Trump acknowledged that Vice President J.D.

5:11 Vance reportedly sent a letter to Iran's top security body. Bloomberg's Honor Ant explains.

5:17 Well, that letter by J.D. Vance to Mohsen Reza was mainly about medical supplies, according to President Trump, who kind of downplayed the outreach. But, I mean, realistically, you're in the middle of a war that's been in its 18th month now. Just writing a letter for humanitarian reasons only doesn't really fly. Clearly, it is part of the diplomatic efforts that have been underway. They have been underway for pretty much the entire duration of the war. So, in that sense, there hasn't been a fundamental change there.

5:47 So that was Bloomberg's honor aunt who added that Trump's previous comments and the market consensus point to a potential U.S. escalation around the time of the U.S.

5:58 Midterms.

6:00 So, those are our top stories for you today. Looking at the markets, NASDAQ stock futures are currently down by nine-tenths of 1%. European stock futures are up by about a tenth of 1%. The AI trade looks to be stalling a little bit, even though we've seen a rally this week, as we got those disappointing earnings from Alphabet and Samsung. Though Microsoft and Oracle were better, the KOSPI index in South Korea is Key bellwether, of course, down by 1.2% this morning. We still have a lot of earnings to come, not just Amazon in the US, but also Shell, Lloyds Banking Group. And out this morning already, BBVA, the Spanish lender, third quarter net income comes in as a beat, € 3. 02 billion. ING, third quarter net income comes

6:44 in at € 1. 85 billion below estimates. Kevin Walsh signaled more hikes to come. A question about why that didn't happen yesterday, though. We have U.S. personal income and spending data very important out today at 12.30. 10-year treasury yields at 4.99% this morning. And the ECB interest rate decision comes at 1.15 p.m.

7:03 Today.

7:03 So, it's another one of these hugely hectic days for markets. In a moment, we're going to be talking a bit more about the Federal Reserve, which held rates steady as expected, but then delivered a surprise change to how the bank will make its decisions potentially. We're going to look at that and also the ECB meeting coming on Thursday. That's in a moment. But of course, I met the Chancellor for a conversation last night after a long budget day here in Britain. Wanted to think a little bit about what stood out to me in that conversation that we're going to bring to you in full in just a moment.

7:39 Because John Healey defended the scale of his budget. And he talked about hard decisions on the Labour government spending priorities coming next year. Now, Andy Burnham, the prime minister, has only been in office three months, has talked about huge change, wanting to deliver that, reversing 40 years of neoliberalism in Britain. Yesterday was not the moment, though, when that happened, I don't think. Bloomberg analysed Healy's first budget, found that it had more measures than previous budgets going back years, but the average scale of those measures is really minuscule. Healy didn't accept that, saying, I'd fundamentally contest that this is not a significant budget. He added, there are some big decisions in this budget. He also said that,

8:22 in his view, you can't measure a budget on the scale of the scorecard. I thought that was a bit strange because that is ultimately how investors, savers, entrepreneurs, even voters are going to judge it. UK stocks and bonds actually seem to give it somewhat of a shrug yesterday. So, I'd call that a passing grade. On the cost of living, there is a voter-friendly energy saving, 100 quid for millions of households paid by a higher bank tax. Healy also admits, though, that there is no way that the government can completely relieve the cost of living pressures or remove the pressure on energy prices. I suppose that's fair enough. It is a global issue. When it comes to the opposition party, the Conservatives in the UK, Kemi Badenot made a joke

9:08 yesterday about the bold ideas translating into 4p off a jar of gherkins. She made that in the Houses of Parliament yesterday. And I also spoke to the Shadow Chancellor, Andrew Griffith, outside Parliament yesterday. So you'll be hearing from him too. He called it a budget of missed opportunities. But first, I want to bring you the chancellor john healy in his own words speaking to bloomberg i started by asking him what his message is now for britain's banks after doubling the bank surcharge levy to six percent increasing taxes on them.

9:45 My message is you're such an important part of this country and its future um but I'm asking you to help with the costs that households need to help get through the winter. And so that new household energy payment that I promised 20 million households, I have to pay for it. And I'm asking the banks to make... A contribution through a time-limited additional surcharge. That time limitation will be in legislation. And the commitment that I have to our financial sectors remains steadfast. And I hope they see that my letter to the Bank of England governor yesterday, setting out an expectation that their capital requirements review will take into account the fact that we need in our financial services sector here banks that can be internationally competitive.

10:38 as a sign of the sort of concern I've got now to make sure that we have a framework within which they can do that.

10:45 Okay, so maybe hoping to make it cheaper for banks to operate. Bold ideas, the 10-year plan. How are you going to fund Andy Burnham's bold ideas?

10:55 Well, the funding for our plans ahead was set out in the budget. We're ready to take some pretty tough decisions on priorities. You've seen that in the way that I've ensured yesterday that the defence investment plan is now fully funded. It wasn't before. And I've had to ask other Cabinet colleagues to make savings in order to fund that.

11:19 We've been able to show how we can take a billion pounds out of asylum costs. So we've demonstrated we can make efficiencies. We've demonstrated we can take tough prioritisation decisions. We've demonstrated also that we can, despite the pressures, control spending. All important, I think, groundwork for... what the budget will then go into, which is the 10-year plan. And the 10-year plan, if you like, is the long-term view of the priorities for Britain. And that will frame the multi-year spending review decisions that we take next year in that spending review itself.

11:55 Okay.

11:55 In the budget, there were a lot of measures, more than is usual, but actually they were smaller by Bloomberg's calculations. The UK has a £ 3 trillion national debt. The UK may not be able to keep putting off the spending cuts required. Do you think the Labour MPs will agree to cuts before bond markets force the issue, as they are doing now with France?

12:18 Well, the level of our debt reinforces the argument for bringing borrowing costs down, for cutting the deficit. The IMF two weeks ago said that Britain stands out for our fiscal consolidation plan. They urged me to keep on the path, and I do today.

12:34 And.

12:37 We're set to have the lowest deficit in the G7 by 2029. I meet the fiscal rules, as I promised I would. For the first time, I'm doing that in the third year, not the fourth or the fifth. So tougher constraints, rules met, and a plan that for the future demonstrates that we can put Britain's finances, its spending, and its fiscal balances under control.

13:01 But your plans still are based on a sharp fiscal consolidation in the coming years that many economists see as unrealistic.

13:10 Well, let the economists take their judgments. We have demonstrated and been endorsed by the IMF for what we've been, not just planning, but what we've been doing in these last two years. And I just say to those economists, yes, we're a government that believes in public services. Yes, we're a government that is now investing £ 40 billion a year more in day-to-day spending, and over this Parliament £ 120 billion more of capital into this country. That's a strong base.

13:40 We can rebuild public services. My Cabinet colleagues have demonstrated that they can also. exert fiscal discipline and spending control and we will take that into the spending review but the spending review will be framed by the priorities that we set in the 10-year plan for Britain that's as it should be hard decisions about the top priorities for Britain in the years to come judgments that then follow about how we fund them.

14:07 Have the decisions, can you really argue that the big decisions have been made in this budget?

14:11 Surely not.

14:12 Surely this is much more of a manana budget, something that puts off the big decisions until next year, you say, the spending review and the 10-year plan.

14:21 I would say there are some big decisions in this budget that you can't simply measure by the scorecard numbers on tax or spend. For the first time, we are devolving fiscal revenues, fiscal measures to local leaders I was in the Treasury more than 20 years ago. I was responsible for all the regional and local regeneration. And that was always in the don't touch box. We're doing that now.

14:46 And that will lead not just to growth, but that will lead to growth. I think more growth in every postcode, it'll lead to the sort of optimism that we're trying to create. But I would just say you can't, in my view, you can't just measure a budget on the scale of the scorecard. So take energy. Yes, the headline measures are the household energy payment, but there's some big decisions that will lead to some fundamental shifts in the energy market and the energy system. So I've set out, for instance, that from today... The first priority of the government will be cheaper energy and cleaner energy will be one way that we can do that. And we will not give the go-ahead to new renewable energy generation unless

15:33 it will bring down bills and that those generation projects can connect to the grid. So some big changes beyond just taking off levies for the future.

15:44 On the consumer bills angle, £ 100, £ 45 of energy bills, is that really going to be enough to satisfy voters and consumers? Bloomberg calculates there's a 25% increase coming in January, more than £ 2, 000 for the average household bill.

16:00 Well, I always want to be honest with people. There is no way that government can completely relieve the cost of living pressures or remove the pressure on energy prices, which people see like we do, are driven by the conflict in the Middle East, Russia's invasion of Ukraine, trade tensions.

16:17 But where we can help.

16:18 We're doing that. Where we can bring a bit of breathing space, we're doing that. And where we can, as I have done with energy, also make decisions now, big decisions that will lead to radical reform on energy, on devolution, on defence and on housing. I've set those out in the budget too.

16:36 Can I ask a last one on the CBI? They say that this budget lacks bold moves. It's not been well received by other business groups, the BCC, the Federation of Small Businesses. They are not satisfied. Is it a missed opportunity to help businesses?

16:50 Well, I spoke with all three yesterday. There are things that they really like and support. There are things that they wanted us to go further. But I'd fundamentally contest that this is not a significant budget. Whether you look at the energy decisions for now, for immediate help and long-term change, Decisions on housing help now, but also signifying the way that we've got to change for the future.

17:17 And on defence, hard decisions now to fund immediately the defence investment plan, but also a commitment to. A target date for 3% in 2030 as part of our path to meet our NATO commitments in 2035, and a determination to make more use of creative financing, private financing, multinational financing, and yesterday I confirmed also that we will start treaty negotiations for a British-led multinational development bank for defence.

17:49 So, that was Chancellor John Healey speaking to me for Bloomberg TV and Radio. Stay with us. More from Bloomberg Daybreak Europe coming up after this. So, how has Healey's budget gone down with critics then and opposition parties? Well, the shadow Chancellor, Andrew Griffith, told me that Healey has blown his chance to get the public finances onto a firmer footing. Despite the Conservatives' own checkered recent history on the economy, Griffith said... that he would have liked to have seen more cuts to welfare spending, borrowing and more bold decisions on cutting the deficit. We were speaking on a busy college green right outside the UK Parliament in Westminster.

18:30 I began by asking him if Healy had at least established some credibility with markets.

18:37 No, it's a budget of missed opportunities.

18:39 Headroom has been reduced at a time of incredible volatility.

18:44 Debt's up. The interest bill that the government is paying is up.

18:48 There's no measures in here that are particularly going to get the economy growing. And he's missed his big chance for a reset. So he's kicked the.

18:56 Can down the road. He hasn't properly funded defence.

18:59 And I'm not sure there's a lot here that make anyone feel more confident to invest in the United Kingdom.

19:04 UK bonds and stocks, though, have had a better month. Growth has been looking a little bit more positive. Surely this is a prudent budget. This wasn't the moment to make those big promises and deliver more.

19:16 Well, look, I accept the Chancellor didn't have much headroom. His own borrowing and the fact that interest rates are at a 30-year high on government debt have used up what headroom he had. But this was a moment to make cuts, to make savings. to make some bold decisions in the public finances. And he's done none of those things today. A few more gimmicks, a few more things to talk about for business, a little bit of help on energy, but at the price of the highest tax burden in history. That's not going to get the economy growing.

19:45 Having heard this budget, do you expect Labour might call an early election?

19:50 Well, the fact he's kicked his decisions so firmly down the road, decisions ducked, decisions deferred, certainly opens that prospect of that early election.

20:00 But look, to be honest, I'm less worried about the election. What I'm worried about is the state, the health of the UK economy.

20:06 And it really isn't in a good place as a result of today's budget.

20:09 Do you think that we'll see a spring budget now? The UK government wants to deliver one fiscal event a year, but do you think that we'll get one in spring?

20:17 Well, hopefully not another one like this.

20:18 He's blown his chance to get the public finances onto a firmer footing. I think the next big thing is the spending review. That's when he's got to make the tough decisions. The knife has got to fall on some areas in order to fund defence. Remember, he's left us naked in the face of international aggression by not properly funding the defence. The very issue he resigned over, 3% funding on defence by 2030, that's just the NATO average.

20:46 NATO's Mark Rutter has welcomed the budget from John Healy and the commitment to try to get to that 3% goal.

20:53 Welcoming the commitment, I'd welcome the commitment, but the reality is... finance director is you've got to make the decisions, got to make the choices, decide what you are going to fund and where the axe is going to fall. And that is the decision on many fronts that the Chancellor's fudged today.

21:10 OK, critics will say national debt in Britain went up by a trillion pounds between 2020 and 2026. It now went through that three trillion pound landmark. And that was largely under the last result of government.

21:23 Well, look, they're not wrong. And there were factors like Covid. But I've always been very clear. This is a problem that has been coming at the UK economy for decades. We have been living beyond our means. We're not as prosperous a country as we once were. And sooner or later, and I'd hoped it was today, but it clearly isn't.

21:41 a Chancellor would come along and make those tough decisions. Deal with the out of control welfare bill, try and get down the cost of borrowing, reduce the deficit by cutting back the cost of government. Those are the decisions that I would make as Chancellor. The Chancellor could have done that today, he's chosen not to.

21:57 What about the bank tax? Increasing less than was expected, in place temporarily for about 15 months. It'll raise what we think is about a billion pounds. Will you ensure that that is temporary? Would you go further and commit to actually reducing that bank levy?

22:13 Well, to reduce taxes, you've got to be willing to make the decisions on spending.

22:17 We've done that.

22:17 I've identified £ 71 billion of savings, and I'll be looking.

22:21 At these numbers and working out where we can save more after today.

22:25 But look, it's the wrong direction, putting up taxes when we've got the highest tax burden next year since the Napoleonic War.

22:32 It's completely the wrong way to go.

22:33 Stop comparing ourselves to the overtaxed G7 and look at those economies in the world, the G20, that are growing much faster. They don't have record levels of tax. They're not as indebted as the United Kingdom. They're not struggling by paying a bigger interest bill than they're spending on defence or on schools or the justice system combined. We have to get to grips with the public finances and that is the big opportunity missed by today's Chancellor.

22:59 Could the Conservatives get elected on a manifesto slashing welfare by £ 70 billion? The last two elections saw those tough questions largely ignored by all the political parties.

23:09 I think ordinary, hard-working people who get up, often holding down two or three jobs, paying their own way, trying to fund their own children, their own housing... recognise that we have an out-of-control welfare bill. We're spending more on welfare by the end of this Parliament than we've ever spent hundreds of millions of pounds. It's out of control, it's growing faster than any other European country.

23:31 We have to get a grip with that.

23:33 And by so doing, not just reduce the deficit, but we can cut taxes on hard-working people. fix some of the disincentives for people to work hard and thereby get our economy growing again. And that is exactly the Conservative plan. Kemi Bade not talked about that today. That is my plan as Shadow Chancellor. And at the next election, since this government so palpably hasn't, we will do so.

23:54 So, that was the UK's Shadow Chancellor, Andrew Griffith, speaking to me there in Westminster. Yes, it was noisy. It was busy. He was giving his reaction to the UK budget. So, what next? We have Prime Minister Andy Burnham's 10-year plan that is expected in the next few weeks. So, that seems to be really the next main signpost for the UK politically and economically. But this morning, we'll have a lot more reaction. The British Chambers of Commerce Director General Siobhan Haviland is going to be joining me. The Office for Budget Responsibilities, David Miles. The OBR, of course, has downgraded UK economic growth next year really quite sharply down to 1%. So, we'll talk about that. And from the

24:35 banking industry, we'll be joined by UK finance CEO David Posting. So, we've still got lots of budget analysis ongoing. for you to understand where this leaves Britain. But really quite fascinating day yesterday and today. Now, let's turn our attention, though, to another decision. European Central Bank expected to keep borrowing costs at 2.5% this lunchtime as it weighs bond market turmoil in France and higher energy costs. It comes after the Fed held interest rates in the U.S. steady yesterday ahead of the midterm elections, but may cut the number of meetings where they will actually make an interest rate decision each year. Joining me now to discuss is Bloomberg opinion columnist Daniel Moss. Dan, good to speak to you.

25:16 Should we start on the Fed? Two members dissented. They were in favour of a hike. And the question in the press conference for Kevin Walsh is why they didn't just raise interest rates yesterday, given inflation.

25:31 This depends in part on your view of what the hike at the previous meeting was. Now, Are we looking at a mid-cycle adjustment or was the hike at the prior meeting the start of a more concerted pattern of interest rate hikes? Now, if you believe that this is more of a mid-cycle adjustment, something akin to what we saw in the mid to late 1990s from the Federal Reserve, then they don't need to hike at consecutive meetings. If you hike at consecutive meetings, it suggests, well, there's something here that people feel is out of control, as opposed to the message that Walsh has been giving when he does speak, that is, says he's not a fan of it, has been inflation's been above the target for five or

26:30 six years. We need to get it down. Our credibility depends on it. He hasn't spoken about the urgency of He hasn't underscored that this has to be done quickly. So not a shocker that rates were left unchanged yesterday. It's in part, you know, a definitional battle over what began or what went on the prior meeting.

26:55 Okay, interesting.

26:56 Well, we like to talk, Daniel. So let's continue because Walsh is also putting his stamp on on the Federal Reserve as an institution. And I think the question is whether that creates more volatility if there are fewer Federal Reserve meetings where they actually make an interest rate decision.

27:14 Yeah, you can see that as consistent with his view that there's too much talking in class. You know, he doesn't give a dot plot. He doesn't give forward guidance. Plenty of his colleagues have no problem with forward guidance. It's also worth considering the opposing case. And we saw a flavor of this in Asia Pacific this week. Now, here's a central bank that did not talk enough. I'm talking about the Reserve Bank of New Zealand, often held up by some as a model for their role in pioneering inflation targeting. Now, what happened this week was an absolute shocker. Something like 99% of economists surveyed and there was unanimity in terms of pricing on this in the market, that the RBNZ would deliver a hike. They did not.

28:13 Kiwi dollar tanked, lots of egg on face, a lot of criticism by economists, market economists, I might add, basically saying, look, hang on a second. You don't want to be driven around by groupthink, and you certainly don't want to appear to be kowtowing to markets in every decision you make. But it is rare that there is such discord between a central bank decision and what people have been expecting. So, could they have talked more? Sure, they would have known what the pricing was. Could they have talked more in the right way? Absolutely. Look, you can make the case that, you know, there's a lot of Fed talk, a lot of central bank talk. Not all is necessarily enlightened, but you have to figure out who to listen to. So

29:17 it's not as simple as saying, well, we'll shut up and that way you guys get a purer read. Doesn't necessarily work like that.

29:24 Yeah, I saw one commentator at the Bank of New Zealand using the word flabbergasted, that they were flabbergasted by the RBNZ decision. So, yes, I think that's interesting that you point to that example. In terms of the ECB then today, what are we expecting? I mean, how much do you think they're going to talk about France, dare one say, France?

29:51 Christine Lagarde is certainly going to be asked about it. And I think she's in a trickier spot relative to some of her predecessors and potential candidates to succeed her. She has not ruled out a role in French public life after her ECB tenure is done. Can you see a case where... okay, you've got a candidate from the far right leading. The second most robust candidate is a candidate from the far left. Christine, your country needs you.

30:33 Where is the compelling centrist candidate? They're not there. Now, much of the conjecture about her post-ECB life is linked to the World Economic Forum. Frankly, I think she'd be punching below her weight if she did that Her country needs you. What are you going to do?

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