Cost of war

29:32But I actually think that those markets might be getting a little bit ahead of themselves. The governor of the Bank of England thinks they might be getting ahead of themselves, doesn't he? He made that point. These are very, these are volatile. I personally think that we could potentially still see another rate cut this year, depending on the Strait of Hormuz. But yes, this is a supply shock. And so even though the interest rates would go up if we were to see a significant impact on inflation, it does feel unfair. And I understand the point. But the Bank of England has a mandate to try and control inflation.

30:14And if it were to cut rates or keep rates on hold when we need tighter, more restrictive policy, then that could exacerbate the problem. And although there would be that immediate impact on the cost of borrowing longer down the line or later down the line, there could be more severe cost of living pressures where we'd see the price of everything potentially go up in the economy. And that's what the Bank of England would be trying to offset. Well, worried Chris in Sussex is also making the point that they're saying that why can't they select a new mortgage product early to try and future proof their finances before things shoot up?

30:52And they're sort of calling it a terrible self-sabotage. Thank you very much for that message. Another message here. I'm going to read out the compliment to you guys because it's nice, isn't it? It's before 6am. Let's have a compliment. This person doesn't give their name to this. I absolutely love the show this morning. Both your guests are amazing and I love the way they put across their points. You asked earlier how this is affecting me. Well, I'm staying in my job rather than becoming an independent coaching consultant because the safety of a good wage packet is worth more than the uncertainty my own business would bring me currently.

31:23Really interesting insight. Thank you very much indeed for sharing that. Oh, we're going to be late to the news, but I just want to touch on the impact this is having on the government. excuse me, as well, because we saw on Thursday the interest rate on two-year government bonds, known as the yield, saw the biggest rise since Liz Truss's mini-budget in September 2022. So essentially, the cost of government borrowing is shooting up. George, just explain why that might be. Is that because of something that the UK is doing? Or is that something that is just a response to this global situation that we're seeing?

32:01No, it's a global response. Short-term rates are coming up across the board and that is the market essentially pricing in roughly half a percentage higher interest rates than what they were pricing in at the beginning of the year. So this is a repricing of short-term interest rates and those numbers tend to jump a lot. Okay, this is just wired bond markets. We just need to remember, however, that we are at the late stage of a debt cycle. So a lot of the disruption you're going to see, both in bond markets but also geopolitically, because some of it is even linked, is there. Okay, we lived through a lot of years of relative stability.

32:48And I think that sentiment people get, it's one battle after another. It's not a polycrisis or a constant crisis. I think the abnormal thing was 20 years of very low inflation. That was your globalization and the global financial crisis together. And that has ended. And now we've entered the period where inflation is a live variable and we have to manage it. And that's what's scaring people. But in the history of economics, the 20 years that we live through called the great moderation is actually more of an abnormality. OK, so what feels like a crisis from an economic perspective used to be normal.

33:29Just a return to a jumpier mean. Victoria, what are you seeing with this? What's your view on how investors might be viewing a government's situation? Yeah, so obviously we have seen some quite significant moves in the gilt market, not just the two-year, but the 10-year as well. that was close to 2008 highs and the pound was up too. And essentially, this is all about the fact that inflation is the enemy of the bond market. So, we've seen quite significant declines in bonds, reflecting growing fears around the possibility of inflation. And that higher for longer interest rate outlook is also punishing bond prices.

34:15Also interesting to look at gold because this has been such a popular asset over the last year. We've seen huge gains across precious metals. But now the higher for longer interest rate outlook makes non-yielding assets like gold that doesn't have an income on it look less attractive. And also the stronger dollar makes that precious metal more expensive. And that's actually outweighing a lot of that safe haven appeal, which is why we saw quite a sharp decline this week. And also, you might argue that it's lost a lot of its safe haven status because if you look at the chart over the last year, it's performed more like a tech stock, which doesn't necessarily feel like a safe place to part your money.

35:00We could talk about this for the rest of the morning, but we are so late to the news. We better leave it there. Victoria, stick around. We'll hopefully come back to you before six o 'clock. That's Victoria Scholar, Head of Investment for Interactive Investor. But George Ligari is in the studio. This is where we let you go back to Athens, where I think the weather might be a little bit nicer. Although it's pretty lovely here, but I imagine even better there. Weather is actually much worse, but thank you. Really? Well, that's good to hear. Did you hear that, Greater Manchester? We are better than Athens.

35:30George, absolute pleasure to have you in the studio. Thank you very much for joining us this morning. Thank you. George Ligari is there, Chief Economist for the Consultancy for VisMazers. The best B2B marketing gets wasted on the wrong people. So when you want to reach the right professionals, use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals, including 130 million decision makers. And that's where it stands apart from other ad buys. You can target your buyers by job title, industry, company, role, seniority, skills, company revenue, so you can stop wasting budget on the wrong audience.

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37:37But you could go back and listen to that. It's been really interesting because we've been talking about the impact of the ongoing conflict in Iran, the Israel-US conflict in Iran, the impact on all of us. And we're going to talk about what it means for British business in just a moment. Lots of you, though, have been getting in touch, talking about all the sort of geopolitical fallout the impact it has on central banks around the world, whether we should be getting closer to Europe, to the EU as a result, what the Bank of England should do. You lot are never short of an opinion. So let me just share just a few of your messages this morning.

38:17Kevin Surrey says, as George, who was our economist just a few moments ago, has said, external issues are not correctable by the Bank of England. But isn't that exactly what they tried to do with the war in Ukraine? How does this differ aside from duration to date. Also, if all prices rise, why would you raise rates? That would likely be due to the fact that energy prices, as with Ukraine, impact all businesses and all households. We're going to talk about exactly that in just a moment. Sandra in Elstree says, your guest is right. As long as Iran has control of the Straits of Hormuz, we are at their mercy into the future.

38:54The war has highlighted this and so must change. Otherwise, the world's economy will be hostage to them forever. This is the problem, not the war. Thanks for a great programme. Thank you, Sandra. And Jim says, he's quoting one of our experts who said when the European economy slows down, so does ours. Jim says, that makes sense. But what reforms have Europe made since Brexit to make their monopolistic and idealistic economy better? I'd suggest none, which is one reason why we voted to detach ourselves. Thank you for your thoughts. You've still got time to keep them coming. You can text me on 85058.

39:26You can send me a WhatsApp message on 08085 909693 and you can use the hashtag WakeUpToMoney on social media if that's how you want to get in touch. Now, let's talk then about what this means for energy costs for companies and therefore for the cost of stuff we buy from those companies. Energy intensive businesses in the UK are facing higher costs now in what has already been a fairly challenging environment. Steelworks, glassmakers, chemical producers, others, they've all had tax relief from the government. But there are then plenty of firms, plenty of businesses that are not considered energy intensive enough to qualify for that tax relief.

40:10Let's talk to Adrian Hanrahan, Managing Director of Robinson Brothers, which is a chemicals manufacturer based in West Bromwich in the West Midlands. Adrian, good morning. Good morning. Good morning. How are we? Well, it's always fascinating talking to people in your sector because I have so little understanding of the many, many industries that you feed into. So you just explain this to us. You produce a range of chemicals. You odourise a lot of the UK's gas. What kind of industries are you feeding into? Who are you supplying? Okay, we develop and manufacture what we call specialty chemicals, and we supply into most industries where, for example, underbonnet applications in automotive.

40:54We supply into the food and beverage market. We supply into the agricultural market. We supply into pharmaceutical market. We supply into what they call latex markets or surgical gloves. We supply into sports running shoes. We supply into the clothing industry. Yeah, it's quite in the way. It's huge. It really is. I would suggest that you're probably not very far away from something that has consumed one of our products. OK, so are you part of the help, the tax relief the government has been giving some of these energy intensive companies? Are you part of the supercharger scheme? No, we're not.

41:33And this is one of my frustrations that we are an energy intensive user. I like the way you described it earlier, but we're not energy intensive enough. but energy is a huge part of our cost. I mean, if I could just go back to, you know, 2023, we were hedged, so we had bought a head. Therefore, our energy bill was about 680 ,000 pounds. When we came off that hedge in 2023, it went up to 1.7 million pounds. Wow. So what can I get frustrated? Before the current crisis, there was still a crisis here, but the government seems to be kind of refusing to address that. It has been extremely expensive energy.

42:17It's one of our biggest, biggest costs that we have to live with. So it was already very, very difficult for you. Now we are staring down the barrel of rising prices. What could that mean for you? Fortunately, and I can't put this down to great management, I wish I could, but the day before the invasion, We hedged for the next two years, sorry, not the invasion, but before the current crisis with the attack on Iran. We hedged for the next two years. So we have stabilised our energy. But that is still£1.5 million per year, which is still 250 % more than it was in 2023. So, I mean, that is still a very, very difficult situation for you.

43:03How do you feel the UK compares to other countries? How competitive do you feel that you can be in the global chemicals market? Because I know that you export a huge amount of your product. Yeah, we export 80 % of our business. It's a well-known fact that the UK energy is 35 % more expensive than the EU, and it's 40 % more expensive than US and China. So it's extremely difficult when you're energy intensive to compete. However, you know, as a company, we can't just sit around and wait for the government to do something because they're extremely slow to respond. Therefore, we have to do what we can to remain competitive.

43:42So unfortunately, what we've had to do in the recent times is to get out of products that couldn't support this high energy. And that, of course, meant job losses, unfortunately. But that's also for across the UK. I mean, there's been 25 chemical closures in the UK since 2021. and with that has been a huge amount of lost jobs. But there are certain products where we have kind of increased our own efficiency, i.e. the energy per kilo to produce. But that's internally driven, but that's survival mechanism and survival is the mother of invention for sure. But we really could do with some help from the government who seem to be, forgive me for being blunt, But they seem to be ignoring what is going on all around them in terms of energy.

44:32Because if you look at our bills, 35 to 40 percent of our energy bill is a tax, whether you call it a green tax or however they butter it up to some fancy names put on it. It's a tax that could be relieved for the short term to get us through this crisis. But they're just not hearing us. I don't even think they're listening to us, to be honest. And in fact, I think the EU overnight has been talking about potentially reducing taxes on energy bills to alleviate some of that pressure. Well, a government spokesperson told us, we know this is a tough time for our energy intensive industries. They talked about the best way to tackle this being getting on to homegrown power, which would bring bills down for good.

45:17But they also say we've published a new steel strategy that will boost advanced manufacturing across our economy. and we're working with all sectors to understand the impact of the situation in the Middle East and explore potential solutions. Are they talking to you? Are you talking to them? Are you making representations to the government? To be fair, yes, we are. I'm doing that through our kind of associate organisation, which is the Chemical Industries Association. But we also presented a paper to them over 12 months ago called Project 35, which outlined all the challenges that we have got and that we were facing and that we have been facing for a number of years.

45:54So we make representations permanently. I have had ministers walk through my door, you know, week in, week out over the last five years. You get, you know, yeah, everybody's in agreement. You know, take a note of this, take a note of that. Nothing happens. They're just not listening. I mean, if you think, we talk about the whole Green Initiative. Yes, there's been a 60 % reduction in CO2 emissions in the UK, but that's not through efficiency gains or switching over to green energy. That's because we've de-industrialized, because we've had a similar reduction in the companies that are existing.

46:35So we're kind of decarbonizing by de-industrializing, which really needs to be looked at. Adrian, fascinating talking to you. Thank you so much for starting your Friday off explaining this to our listeners. Adrian Hanrahan there, Managing Director of Robinson Brothers, which is a chemicals manufacturer. Listening to that still with us is Victoria Scholar, Head of Investment for Interactive Investor. investor. Victoria, really interesting hearing Adrian talking about sort of coming out of some of the more energy intensive aspects of his business with the resulting job loss. I mean, that shows the sort of immediate knock on impact that these higher bills can have on some of our big manufacturing companies.

47:16Absolutely. We know that higher energy bills can be a major headwind both for consumers and businesses. And that's a real life example of just how painful that can be and the knock-on implication, like you say, for the jobs market as well. And I think that a lot of hiring is often to do with confidence because you've got to be thinking about the outlook for the next 6 to 12 months or even longer. And can a business afford those long-term fixed costs of hiring someone, paying their wages, contributing to their pension and everything else? And sometimes when there is that uncertainty or there is that nervousness, it's easier just to go for temporary workers or maybe try and make do with the workers that you already have.

48:01So these energy bills do have a real impact on the broader economy. Speaking of the broader economy, there's a very interesting Big Boss interview this week that I just want to mention because it gets into a lot of the topics we've been talking about. Mark Neill, founder and chief executive of Mountain Warehouse, you know, the outdoor clothing company, talking about disruption to global shipping routes, what that's meaning for his costs, businesses importing goods from Asia, talking about that tariff volatility that we touched on a little bit earlier. So do have a look for that on BBC Sounds. And you can also subscribe to Big Boss Interview on BBC Sounds and then you would never miss one.

48:40Before we move on, Victoria, I want to just also talk a little bit about one particular sector being hit quite hard by what we're seeing by the interest rate discussion that we've been having. House builders, Persimmon and Barrett Redrow, they ended the day on Thursday as some of the biggest fallers on the FTSE 100 at market close. How much did the Bank of England interest rate decision play into that? Oh, I'd say quite heavily. The house builders are highly sensitive to Bank of England interest rate decisions and tend to be the biggest moving sector on rate decision days. And we saw that reflected in some of the house prices, house builder share prices yesterday, the likes of Taylor Wimpey, Persimmon, Barrett Redrow, all down about around 4 % each.

49:30And this is all about the fact that at the beginning of the year, we were expecting a rate cut yesterday. and things drastically change with the war in Iran. They re-sparked these inflation fears and it meant that now we're in a much different interest rate and inflation outlook with the potential of much higher for longer interest rates. That makes mortgages less affordable and that puts pressure on house builders. Also, the potential for inflation can add to those costs of actually building houses. Do you remember back in the cost of living crisis and after Covid, we saw that construction costs soared and it became much, much more expensive to build houses.

50:15And so these shares are reflecting those pressures on both sides. We've got a few messages in actually on mortgages. One person who doesn't give their name says, Adrian is so right about the government not listening. As a landlord looking at higher mortgage rates and£15 ,000 per property for energy upgrades, unfortunately, my tenants are going to be evicted as I sell up. And Ian in Cornwall says, I can remember when councils offered a fixed interest mortgage for 25 to 30 years, they were 1.5 % above the current rate at the time of taking the mortgage. It seemed high until rates rose and rose to above 15%.

50:51And then it seemed remarkably cheap. I bet it did, Ian, in Cornwall. Thank you very much for that. There's still five minutes. Get in touch. If you still want to join the conversation, you absolutely can. But now we're going to talk about the fact that millions of Muslims across the world will be celebrating the festival of Eid al-Fitr today, marking the end of the holy month of Ramadan. Last night was Chad Rat or Moon Night, which marks the first sighting of the moon and the start of the festival. Families will be attending events. It's a time to socialise. But look, we're a business show. It's also a time to buy gifts for the celebration.

51:28That's what we're going to be talking about. Last night, Maria Soroya, owner of Samara Events, hosted a market-style night at the Royal Noir restaurant in West London with henna, jewellery, clothing all on show. Maria, good morning. Thank you very much indeed for joining us. Good morning. How are you, Felicity? Well, I'm good. I'm good. I suppose I'm very keen to understand what chard rot sort of means, how it plays into Eid celebrations, and of course, what it means for the businesses kind of serving this community. Absolutely. So firstly, I'd like to wish everyone Eid Mubarak, as it is Eid today.

52:08So with Muslims, we observe Ramadan, which is for 30 days, if we do not see the moon on the 28th fast, and therefore it would continue on to become 30 fasts. Basically, the Jandrat is something that my husband started 15 years ago and it was purely just to bring the Muslim community together and for them to actually come together and celebrate the Jandrat. Jandrat basically means the sighting of the moon, which then declares that it is now Idul Fithr. so us Muslims we have two Eids, Eid al-Fitr which is during Ramadan and then we have another Eid which is Eid al-Adha which is basically when we go to pilgrimage to perform something called Hajj so it was absolutely an amazing event at the Royal Lavab in Perivel in London, West London We had over 5 ,000 people footfall last night from midday until midnight.

53:20And we had exhibitors who were exhibiting from all over the country. And what kind of thing? What kind of exhibitors? Yes. So the most important one is henna. Henna is something that is very, you know, a symbolical for Eid. So, you know, we have henna designs put on our hands. And, you know, we had a lot of, we had, I think, about nine henna stools. And can you imagine even nine henna stools? They had long queues of ladies and girls wanting to put henna stains on their hands. I bet because that's not going to be a quick thing to do either, is it? It can be so incredibly beautiful and intricate.

54:03Oh, it's so beautiful and intricate. And, you know, hats off to these henna applying, you know, the applicators. Like they are absolutely amazing because it takes great skill to be able to do that. So, yeah, it was lovely to see, you know, children from as little as, you know, two year old little girls all the way up to elderly, you know, family members and parents who came to put henna on. And how important is it then, is an event like this, a celebration like this to the businesses, the varied businesses that we're exhibiting with you? Yeah, absolutely. So as you can appreciate, there's a lot of small businesses that operate from home.

54:50And our job is to support those small businesses. There are small businesses, you know, from henna to clothes to jewellery. we have something called khusseh which is an asian form of shoes which originates from pakistan so there were khusseh stalls there was um uh you know food stalls um there were fragrances so basically the whole aim was just to bring the community together we had um the local community leaders who came to join the event so we had councillors we had MPs who came to actually uh you know join the celebrations and support the event as well it sounds like it must it sounds like it must have been a heck of a night an event a celebration thank you so much for joining us Maria and telling us about it and Edna Barak to you as well thank you so much thank you very much kivali also kivali is a sound like it's a music folk music which was we're always so out of time we're so out of time or we could talk about it the rest of the morning but thank you maria soroyer there owner of samara events thank you so much thank you to victoria scholar from international investor for your insights this morning and thank you to you for your messages for your company that's it for wake up to money

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