Rates Debate Heats Up, UK Bank Tax Coming, Luxury’s Unsold Secrets

SPEAKER_1 (0:02)

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Caroline Hepker (0:09)

This is the Bloomberg Daybreak Europe podcast. Good morning, it's Friday the 16th of October. I'm Caroline Hepker in London. Coming up today, Fed Chair Kevin Warsh keeps markets guessing on interest rates as Andrew Bailey and central bankers from the ECB play down inflation fears. The UK Chancellor gets ready to raise taxes on banks to fund cost of living support and shore up the public finances. Plus trading places, the EU prepares powers that could shut Chinese goods completely out of the single market. And we look at why luxury brands will soon have to disclose how much unsold stock they shred or burn. Let's start with a roundup of our top stories. Fed Chair Kevin Warsh has stuck to his mantra of giving markets no clear steer on interest rates ahead of this month's meeting. Speaking at the IMF, he said he won't pre-judge the decision.

Kevin Warsh (1:03)

At the Federal Reserve, we made very clear that we would deliver price stability. And we removed a dose of accommodation about a month ago. I don't pre-judge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year.

But that was the situation.

Olli Rehn (1:22)

We disappointed half of the audience or more.

Kevin Warsh (1:24)

They can all turn it off. It's a new chapter of the Fed, and we're not in that business anymore.

Caroline Hepker (1:30)

Okay, well, we haven't switched anything off, of course. Rate hike bets fell during his remarks. Well, the S&P 500 and NASDAQ futures hit session highs, as Warsh also called AI a major boost to productivity.

Kevin Warsh is among a host of key central bankers who've been sharing their thoughts at the IMF Summit as fears over rising prices grow. However, the Bank of England Governor Andrew Bailey said that he sees little evidence yet of inflation becoming embedded here in the UK.

Andrew Bailey (2:01)

We've got the first round effects of energy prices. We've got inflation just over 3%.

The question for us is, what are we seeing and what do we expect to see in terms of it passing through into indirect effects and then into second round effects? And two things on that. One is it's early days. So we mustn't really form any very strong views on this, I think, because it's too early. But to the extent we have seen evidence, it's quite subdued.

Caroline Hepker (2:28)

Andrew Bailey added that the UK economy is proving to be more resilient than the central bank had expected. And at the ECB, governing council member Olli Rehn echoed that message speaking to Bloomberg, Finland's central bank chief had this to say.

Olli Rehn (2:43)

Growth outlook in Europe is better today than it seemed at the beginning of the year. European economy has shown resilience. Growth is not brilliant maybe, but pretty good and has improved in the course of this year.

Caroline Hepker (2:59)

Olli Rehn added that policy makers will have more information on growth and inflation ahead of the final rate decision of the year. The ECB has raised interest rates twice this cycle, with investors now focused on the 17th of December decision.

France's finance minister says that high borrowing costs are helping to keep lawmakers focused on repairing the public finances. The sell-off in French government bonds reflects concern that France is not cutting its deficit fast enough with debt at around 118% of GDP. Roland Le Scour told Bloomberg that the turmoil is helping to focus political minds.

Roland Lescure (3:39)

We have two guardrails that allow the budgetary discussion to stay on course. One of them is what we call Article 49.3.

We can change the budget compared with the one we tabled in two weeks ago. We can put it in front of parliamentarians and say take it or leave it. If you don't like it, you have to make the government fall.

Caroline Hepker (3:59)

Roland Lescure there, as the French parliament began debating next year's budget, the government's bill includes 43 billion euros of measures aimed at reducing the deficit, but reaching a compromise could prove difficult with parliament deeply divided and a presidential election six months away.

Here in the UK, the Chancellor of the Exchequer John Healey is set to raise taxes on banks in order to stabilise the public finances. Bloomberg understands that the Levely is one of the major measures that Healey has asked the Independent Office for Budget Responsibility to evaluate ahead of budget day. It comes after the Chancellor talked up the sector in an interview with Bloomberg yesterday.

John Healey (4:43)

These are a really important part of the British economy.