Challenging talks

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1:42Wake Up to Money from BBC Five Live. Hello, welcome. It is Wake Up to Money. The Prime Minister is warning of chaos if there was a challenge to his leadership. He could well face that today. We'll have a look at what it could potentially mean for the economy. We'll chat to a former government advisor. Donald Trump right now is lining up dinner with President Xi Jinping in China as he continues his visit there. He's flanked by the bosses of some of the US biggest tech companies and the words have been warm. You're a great leader. It's an honour to be with you. It's an honour to be your friend. What is that going to mean for global trade?

2:22There's been a trade war in the last year or so between the two countries. So we're next. And Hollywood Studios are skipping this year's Cannes Film Festival and indie film producer in France tells us why and why it's still good for companies like hers. Wake Up To Money with Sean Farrington. Good morning to you. Wake Up To Money on BBC Five Live. Thursday morning, the 14th of May. It is just after five o 'clock. Hope you are well. 85058. Do please let us know your thoughts of all we are discussing on the show today, whether it's what the world's relationship should be with China, with the United States, perhaps as we hear those warm words between the leaders of China and the United States.

3:07It's going on right now, that meeting between them. I think the banquet is going to be taking place a little bit later. There's pomp and pageantry galore. Donald Trump appears to be enjoying it all. President Xi Jinping calling for China and the United States to be partners, not rivals. And as we heard there, President Trump describing President Xi as a great leader. I've got Joe Corson with me this morning, Chief Executive of the Institute of Customer Service here in the UK. Joe, good morning to you. Good morning to you, Sean. And Lucy Cootes as well, J.M. Finn's Investment Director with us. Morning, Lucy.

3:49Good morning. Now, we're going to be getting into talk about our own leader here in the UK in a few moments. And that, of course, is dominating what could possibly happen with the UK economy in the months and years to come. But just given this is happening right now, and we'll delve into it more later on. But when you see these lines coming out of the conversation, Lucy, the words being so warm, President Trump talking about the president of China in ways that many presidents for decades would not have done. What's going on? well i mean china probably holds the stronger hand um because it has it has export controls over rare earths and these um these minerals are critical for manufacturing for artificial artificial intelligence for robotics and car making um and i think in reality this is very much a sort of public meet and greet.

4:57But I think expectations are pretty limited for any broad agreement on tariffs, etc. And, you know, we can hope maybe for an extended trade truce, perhaps they may establish a board of trade. I think there's a willingness. I mean, you've got these two superpowers, but I do sort of feel that China has the stronger hand. So it'll be interesting to see what what happens and joe when you just hear those words you know from donald trump himself talking in such great terms about the president of china what was your reaction as you heard that i think it i think it's really interesting i mean it's eight years i think since or nearly over eight years since they last met and it makes me reflect just how much the geopolitical and economic landscape has changed and also makes me reflect on how much, you know, in many ways, we need to see much greater unification and bringing together.

5:58But I would agree with Lucy. I think that the challenge is that sometimes something is said and then the volatility of what is happening is probably one of the biggest impacts. You know, Trump might say something, but something very different happens or as a result of that. But we do need to have a more unified approach to this. And both parties, the US and China, do need each other. So that's the conversation going on between the United States and China right now. High stakes talks. We can see on the news wires as the very latest lines come out of it that President Xi already talking of potential conflict with the United States over Taiwan.

6:44That's Chinese state media reporting that. If it's handled well, then bilateral relations can remain generally stable. If it's not handled properly, the two countries could collide or even come into conflict. So President Xi sort of laying out why the relationship between the two countries is important. and very interesting that that is the number one issue that he's bringing up. So we will see over the coming hours and days the consequence of that. We'll chat a little bit later in Wake Up To Money about the products that we all rely on, that are made in China, have been made in China, the impact the trade war and the tariffs has had over the last year, the cost pressures on businesses.

7:28We'll speak to one business that has a manufacturing, big manufacturing bases in China and across Asia that may well make much of the cooking equipment that's in your kitchen right now. So we'll talk that a little bit later. Let's talk about what will happen with the Prime Minister here in the UK. Douglas McNeill is a former Treasury Special Advisor. He advised the likes of then-Chancellor Rishi Sunak, former Prime Minister's Theresa May and Boris Johnson as well. So he has experienced turbulent times at the top of leadership. Douglas, good morning to you. Good morning, Sean. Does it make you feel like the years that you went through advising those leaders I just mentioned was only just a few days ago when you see what's going on at the top of the Labour Party now?

8:16Yeah, I must admit I am experiencing a certain sense of déjà vu. And I wish I wasn't. You know, stability is important. I don't think that a change of prime minister would necessarily do much for Britain's reputation on the international stage. But then again, the prime minister of the day has to command the confidence of the House of Commons. That is also an essential part of stability. Not the first time we've heard this argument from a prime minister either as well about, you know, this would be chaos if my leadership is challenged. something we did here throughout those Conservative years and the bouncing between different leaders, you know, Theresa May and Boris Johnson having three years each and Liz Trust more like days and months and Rishi Sunak then having those couple of years until he'd lost the election.

9:05Is it a fair claim to make? This could result in chaos if you challenge me? Well, chaos might be a slightly hyperbolic term, But certainly a lot can change in the course of these leadership campaigns. I think if there is to be a Labour leadership change, the process of choosing a new leader will take some six weeks, something like that. Back in 2022, when Liz Truss and Rishi Sunak competed for the Conservative leadership and the Prime Ministership, that took about eight weeks. And during that period, the yield on the main government bond, the 10-year government bond, one of the key benchmark numbers in the economy, that went up by about one percentage point, which is quite a lot.

9:52And that reflected the fact that the market increasingly came to see that Liz Truss was likely to win that contest and was likely to bring in a more lax fiscal policy than Rishi Sunak had been pursuing as Chancellor. So if something like that were to happen in any putative Labour leadership campaign, you might see a similar change. And that is a big change. Let's talk a little bit about Wes Streeting as he's getting so many of the headlines this morning from the time Streeting prepares to quit ahead of number 10 challenge. And, of course, bear in mind, this is the health secretary in the government who's been leading the NHS since the Labour Party won the election.

10:36Streeting on manoeuvres, ready to launch leadership challenge today. The front of The Guardian, the front of Financial Times, is Starmer rallies Labour loyalists in move to see off-streeting challenge. Let's just hear a little bit. So there was this, whatever it was, coffee meeting, a little catch up that the Prime Minister had with West Streeting yesterday. Mr Streeting had little to say when he left number 10 after what's reckoned to be about 17 minutes. What did you say, Mr Streeting? Did you ask the Prime Minister to resign? Are you going to resign, Mr Streeting? Do you want the job or not?

11:17Didn't hear the one about the curtains there, but that gave you the idea of what that was like outside number 10. yesterday before the King's speech, Douglas. What do you know of Wes Streeting and what he would like to do? If he is heading the way, everybody seems to think, in that he's quite keen to make a push for the leadership, whether he gets there might be, he's a very different matter. Street fighter, front page of the Sun this morning. How would he lead any differently? What would he do? Well he's something of an unknown quantity in terms of economic policy I think it's fair to say he hasn't been a treasury minister for example he is seen as being on the right of the Labour Party he has expressed concern in the recent past about the level of the tax burden so that's consistent the position on the on the right of the Labour Party and the tax burden certainly is higher than it has been for many years he's not the only person I'm sure who would like to see that tax burden fall.

12:22But getting it down is a difficult job. That would mean that you have to, for example, cut spending elsewhere. And that's not easy for any prime minister from any party, really. Or you would have to promote faster economic growth. Again, that is not very easy to deliver to order. The government has an influence on the rate of economic growth, of course, but So it also depends, economic growth also depends on a whole range of factors which are beyond the government's control. So it's not all that clear to me what he would do differently. But I suppose some Labour MPs are hoping that he might bring a sort of a different vibe to the thing.

13:04And maybe that would make some difference. But really, substantive policy changes would be required if he wants to actually do things differently. Joe, Joe Cawson with us this morning, Chief Executive of the Institute of Customer Service. What do you make of West Streeting what he might want to bring to the very top of the cabinet table? Well, I think the whole situation over the last week has been coming on over the last few months. And what it indicates to me is just how fragmented and polarized our landscape is and how that is playing out politically and how that is playing out economically.

13:45And in terms of the different positions, you know, as a customer or as a citizen in the UK, probably the things that are worrying me most is the cost of living, the inflation, the impact of the Iran war. and I'm probably less concerned about who is the actual leader in many respects. But the other thing that I would say is that if you look over the last 10 years, I think we've had something like six prime ministers and that degree of change definitely causes quite big impacts in terms of our economy and in terms of our long-term view. How do you see that play out when you say that definitely causes an impact?

14:30What happens? So I guess from the terms of, you know, obviously what happens and plays out in the markets, what plays out in terms of whether businesses that I work with are confident. You know, we like stability, don't we? We want to make sure that we can look 12 months out or at least, you know, at least 12 months out, 18 months out to ensure that we're investing in the right things as organisations. And I think what we are seeing is this, and we've seen it for a little while now, And it's not just in the UK, but this whole uncertainty playing out, which means that as organizations, we're less likely to make bold decisions.

15:07We're probably more likely to retrench. And that's not what we need in order to get the growth that obviously we're trying to drive. And as a service nation, Sean, you know, there's so much opportunity. And, you know, with the development, as we're seeing in technology and AI and automation, you know, we should be forging forward. And it's somewhat of a distraction, I guess, is what I would say. Lucy, we've seen that in the last couple of months, haven't we? If we look at the cost of borrowing for the UK government and how that has risen in recent weeks, not even I know there's been a lot of talk in recent days and that will continue about moves over 5 % of the interest rate that investors are sort of demanding when they lend the UK government money for over a 10-year period on that 10-year bond.

15:57But it's been quite a while, that ticking up in interest and that ticking up a little bit faster than other countries around the world. Yes, it is. I mean, this is because there's sort of – we've got obviously the political issues, which basically just add fuel to the fire. But we have got some inflationary pressures. So what we've seen is that I think we all got rather excited last year thinking we would see three cuts in interest rates from the Bank of England this year. And that is very unlikely. So I think we're not expecting any interest rate hikes despite a tick up in inflation just because the economy is fragile.

16:46So I think it's just holding that sort of steady ship. But you're quite right. I mean, the markets are selling guilt because of the political environment, but also... And selling guilt basically means we want more of a return if we're going to lend you some money or we're not as convinced as we were in your economy as we were before. Exactly. Now, yesterday, interestingly, the 10-year yield did ease a little bit more. So it came down a bit and that's because Wes Streeting is on the right of the Labour Party, his policy. So we don't expect too much fiscal damage from that if he succeeds. Douglas, how does this impact your former Treasury special advisor?

17:33We're going to be talking about the budget in the autumn again at some point soon. And we might well be talking, is it going to be Rachel Reeves and as Chancellor to Keir Starmer that will be carrying out that budget and the like. But what difference does it make if those interest rates, the cost of government borrowing, is higher than it was expected to be? Well, that means that the government has to pay more on the new debt that it issues into the market. So that pushes up the overall interest bill for the government. And if inflation is rising at the same time, either because of government policy or external factors such as the oil price, and that pushes up the rate of interest that the government has to pay on what's called index-linked debt, inflation-linked debt, and we have a lot of that in issue.

18:24So that means that the government will have to devote more of its budget, more of our tax revenue to paying for the interest. Currently, it has headroom of about£20 billion, just over. That's the extent of the surplus that it plans to run. in 2029-30. That's the target year for the famous fiscal rules. Goldman Sachs, for example, Eminent Investment Bank had a report out earlier in the week suggesting that that 20-odd billion pound headroom, room for manoeuvre, might be halved by current events and current moves in the interest rate market. So that makes the Chancellor's job more difficult. It means there's less money to spend and less ability to satisfy the people who want more money spent on a range of very valid causes in many cases.

19:14So defence might be one aspect where the government's been under pressure to spend more. So being chancellor is never a simple job and moves at the moment in the interest rate market and the gilt market threaten to make that job even more difficult in the months ahead. Douglas, just finally, given your experiences working with Rishi Sunak, Theresa May, Boris Johnson, all who at times were either challenged for their leadership or were challenging somebody else's leadership. How is this one going to play out in the next few days, do you think? Well, I think it's not totally certain that Wes Streeting is going to prevail here, assuming he comes forward with a challenge.

19:56It seems to me that Keir Starmer maintains quite a base of support within the Labour Party. However, even if he sees off this particular leadership challenge, there might be others to come. It seems to be a somewhat unstable situation. There's clearly a lot of unhappiness in the Labour Party. So it might be that one way or another, we encounter some months yet of uncertainty, even if West Streeting doesn't succeed with any bid that he launches today. Douglas McNeill, former Treasury Special Advisor, thank you for your time this morning. a few of those other front page headlines just to give you a bit of a sense of what might be happening today.

20:37Miliband to fight streeting for number 10. So that's the front of the Daily Telegraph. That's Ed Miliband expected to throw his hat into the ring shortly after if the health secretary, West Streeting, does as many seem to be expecting him to, to quit and launch a leadership bid. So Ed Miliband might get in on the act if he thinks he needs to go up against West Streeting. That might have something to do with the fact that Andy Burnham, who's the mayor of Greater Manchester, may not have a seat in Parliament, which is needed to be able to be Prime Minister. And if that's not the case and he can't quite run yet or won't get that seat in time, then maybe Ed Miliband will run.

21:23Will Angela Rayner run? Some questions about that as well. Ed, Andy and Ange to join. battle is the front page of The Sun this morning and there's a bit to go it seems on Andy Burnham's attempts to become an MP where might that be? Will he win that election when it takes place? Wake Up To Money with Sean Farrington Good morning, Wake Up To Money on BBC 5 Live don't forget you can get our Big Boss interview podcast sit down with the leaders shaping the British economy the global economy, Google, Sundar, Hitcher we've had JP Morgan's Jamie Dimon the bosses of Vodafone, Ford, Centrica, Castora, all the likes.

22:01And on this week's episode, Fliss is speaking to the founder and chief executive of one of the most successful tech startups here in the UK in recent years, Raspberry Pi. That'll be available first thing tomorrow morning on BBC Sounds or wherever you get your podcasts. So get subscribing there. You get more of us, which is what you want, isn't it? But also more from those bosses influencing so much of what we do. day to day. Very interesting comments from the TUI boss, the holiday giant, Europe's largest travel operator, which has reported a 10 % drop in UK summer booking. So customers are holding back.

22:44We've heard sort of mootings of this, haven't we, over the last week or so on Wake Up To Money. Well, TUI really laying it down in the numbers yesterday. So the key summer season sales were down 7%, so say, the times. Joe Corson, Chief Executive of the Institute of Customer Service. The holiday industry seeming to be taking a bit of a brunt, taking the brunt a bit of what is going on in the Middle East at the moment and particularly the consequences on what then households think of doing next. Definitely. And I think it is really interesting. I mean, this is obviously not just about oil and availability, but obviously some of the uncertainty about whether flights will go ahead, shortages of fuel.

23:34And I think that on top of the wider landscape is from the data that we're looking at. Consumer sentiment or what we would talk about is consumer sentiment or confidence has definitely fallen. And that's not just in the airlines industry. We've seen that, as you're suggesting, more broadly across the tourism sectors and also hospitality. So I think we've got several things going on. The wider instability and uncertainty, in the same way as we were saying before, impacts organisations. But it also impacts, obviously, us as customers and consumers. And if we're less confident, we're less likely to spend on some of those bigger ticket items.

24:16It is interesting, though. So generally, you know, the things that we will try to protect are our holidays. You know, we need to feel that we're getting a break and getting away. But if we are concerned whether we're going to be employed or we're concerned that interest rates will go up or whether we're concerned about inflation, that will have and continues to have quite a big impact on those decisions that we make, which may mean, might be good for the UK economy, which may mean that we're going to holiday more in terms of staycations this year. Yeah, it seems there's been a shift. Satui, which owns five airlines as well as hotel chains, travel ages, its cruise lines, seen a shift in demand from eastern to western Mediterranean holidays, of course, with that.

24:59People may well have seen prices change as well. If you have, let us know, 85058. The head of the global airlines trade body, the International Air Transport Association, has warned that higher flight prices could continue into next year, even if the Strait of Hormuz were to open tomorrow, which nobody's expecting it to do. Willie Walsh, who used to run British Airways, you might remember, later became chief executive of its owner, IAG, has been speaking to our transport correspondent, Theo Leggett. The principal concern really relates to the fact that the UK does not have a lot of refining capacity for the size of the economy and actually imports about 78 % of its jet fuel requirements.

25:46So quite a significant amount of that, about 34 percent, comes from Kuwait. And Kuwait has not exported anything since the war really started. So the concern will be whether the UK can source alternate supply of refined jet fuel. What we've seen so far is that prices on long haul flights have gone up quite considerably and we've seen fuel surcharges and so on. In Europe, prices have gone the other way a little bit because it seems people aren't willing to travel. So airlines are trying to encourage them back. Do you see that as a very short term thing? Are prices bound to go up in Europe as well?

26:24Yeah, I think it's inevitable, given that if you look at it at an industry wide level, fuel will represent, I suspect, around 40 percent of the cost base this year. when you consider that airline margins are in the order of 3 % to 4 % at a net level. There's just no way that the airlines can absorb the additional costs that they're experiencing. So ultimately, the consumer will end up seeing higher fares. There may be instances where airlines will discount to stimulate some traffic flow, given that the flights will operate. They'll want to maximize the number of people on those flights. So you may see some tactical pricing options being used by airlines as we go through the summer period.

27:08But over time, as I said, it's inevitable that the high price of oil will be reflected in higher ticket prices. And is this going to be a long term thing? I mean, if the Strait of Hormuz were reopened tomorrow, would we then see prices coming back down again? I think it's likely to continue for some months to come yet. So even if it opened tomorrow, the disruption to the supply of crude, some damage to refining facilities, the disruption to the refined product, all of these issues will take time to resolve. So whichever way you look at it, I think this issue will continue for a number of months to come and may indeed continue into next year.

27:50So that's Willie Walsh, the head of the global airlines trade body, the International Air Transport Association formerly used to run British Airways. Lucy, Lucy Coutts with us this morning, JM Finns, investment director on oil, Lucy. I mean there's been all different aspects of the oil story that we've heard in recent months because of the war in Iran but some of the latest headlines have been because the oil inventories around the world being depleted at a record pace say the Financial Times it seems to be a concern about the stocks that are around the availability of it in the months to come Yeah exactly right So if we're not sort of getting new oil shipped across the world, then inventories are going to be drawn down.

28:40And you're absolutely right that we're at multi-year lows. But it's just the sheer number of barrels of oil that the world needs. And, you know, any physical restock of inventories will take weeks and months. You know, you've got to reposition the cargo ships. I saw a piece of narrative sort of just describing how slowly these big cargo ships move across the waters and they move at the speed of a bicycle. So someone peddling a bicycle, doing pretty well, I can't do 40 miles an hour, that's your average. They move at that pace. So what we're seeing is that yes, the ships left the Strait of Hormuz in February but that oil is yet to be delivered so the supply is actually still there but what we're going to see is that that tap stops and the supply will dry up and then we've then got to reposition all those cargo ships and then restart the restocking.

29:45So it is very interesting just hearing Willie Walsh there say it could be into next year. And we've heard Donald Trump say, don't worry, buy American oil but it seems there's an interesting piece from Bloomberg yesterday and from Javier Blas, somebody we speak to on this programme every so often, about how actually the United States, it may well have ramped up its production and its supply of oil to the rest of the world considerably in these last few months, but can it really keep that up? Well, no, I don't think it can. And actually, Joe Biden tapped on their reserves quite significantly as well.