Going down & Going under?

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1:16This all-in-one nutrition shake delivers bold, authentic flavor crafted from premium decaffeinated Brazilian beans with 25 grams of protein, 6 grams of fiber, greens, and so much more. Treat yourself to the flavor and nutrition your body craves. Go to cachava.com and use code smoothie. New customers get 15 % off their first order. That's K-A-C-H-A-V-A.com, code smoothie. Wake up to money from BBC5 Live. Hello, morning. Welcome to Wake Up to Money. The war in Iran and more AI uncertainty continue to dominate the business world. Our Friday panel are here to look at why Meta and Microsoft are announcing cuts to jobs and tell us what they learned from a week of data on the UK economy.

2:01Also on the programme today, a warning from the Bank of England that it expects stock markets around the world to fall as share prices don't reflect the many risks facing the global economy. And 10 years after this, Leicester City are the Premier League champions. From Premier League champions to a£70 million financial black hole. We'll take a look at the financial mess at Leicester City. Wake Up To Money with Will Bane. Morning. Welcome to Wake Up To Money on Friday the 24th of April. Just gone five o 'clock in the morning. Will with you this morning. Great to have your company as we round out another busy week here on the programme.

2:39Lots of data for our panel who are standing by to pick through, of course, about UK inflation, UK government borrowing, what the impact that the war in Iran is having on all of that, but also overnight, lots of corporate news for us to dig through to, including a big announcement of job layoffs at Meta, some voluntary redundancies at Microsoft, all to do with AI spending. And yes, in the second half of the programme, we'll look into a bit of the football finances and what on earth has gone wrong for the former Premier League champions, Leicester City. So loads to get to. If you want to join the conversation this morning, 85058 is the text number to get in touch with us.

3:1408085 909693 is the WhatsApp. If you want to make a comment, perhaps you've got a question for our panel as we move through the morning. Let's introduce you to them. Namisha Raja back with us. The founder of NIMS Naturally makes air-dried fruit and vegetable crisps as well as drinks garnishes selling to the hospitality industry right around the UK. Namisha, morning. Great to have you back on the programme as always. Good morning, Will. Thank you very much for having me. How's business going at the moment? Not too bad, obviously. You know, everything going on at the moment affecting us quite a bit as well.

3:49Yeah, I was going to say, how are you being impacted? Well, several fronts, actually. We had just started exporting to Dubai and this was our fourth order going out about a day before the war broke out and it's stuck in some ship somewhere along the way. And we have no idea whether it's ever going to get there and we've probably lost the contract now as well because if it doesn't get there soon, they'll just delist it. It's in a supermarket in Dubai. Then we've had, obviously, the petrol prices are another thing going on, but the cost of everything is going up. We, air freight, fresh fruit from Vietnam, and air freight costs have gone up by about 75 cents per kilo, and we would import about two tonnes at a time.

4:46you know, petrol as well, travelling in£17 extra to fit up the tank now. But, yeah, it's something that's affecting. And, of course, we're getting almost, we started getting almost daily emails from logistics companies as well as plastic manufacturers, packaging manufacturers saying prices are going up. And it just feels like COVID and everything else all over again. and gas prices have gone up. Last time I was caught out when the war in Ukraine broke out, we were caught out with our gas prices. Our supply went bust. We didn't have a contract. And our bills went up by from about$2 ,500 to$17 ,000 a month.

5:37This time, as soon as it was announced that Iran and USA are at war, I knew our contract was running out in about a month's time and I logged on to our account and just renewed our contract and fixed it for a year. Now I wish I'd done it for longer. I wasn't expecting this to go on so long. But I think lots of businesses are suffering and many small businesses we work with, hospitality, are closing down as well because they just can't keep going as resilient as small businesses are. Well, that is perfect, perhaps the wrong word, given the difficulties you're facing. But in terms of setting up the backdrop for the data we're going to talk about this morning, Namesha, it does, I hope, give people a sense of the pressure that businesses of all sizes right across the UK are facing already.

6:28I'll whizz us through the rest of the introductions of the panel, and then we'll get straight into that around the UK data and those inflation figures from earlier in the week. To Gervais Williams, Chair of Equities at Premier Martin, is here in the studio with me, Linda Yu, economist at Oxford University and London Business School with us as well. Given Namisha's taken us there, why don't we get straight into our first topic because people feeling the pinch, particularly at the pump, as Namisha was mentioning, as the Arrawo continues to drive up those prices. Earlier this week, we heard from a full-court operator who said he had noticed an uptick in customers stealing fuel.

7:01It's definitely getting worse. There's two different types of theft. So you've got your standard drive-off where someone pulls up at the pump, fills up, gets back in the car, drives off. and then you've got the no means of payment where people present themselves in the shop as not being able to pay. Now, obviously, some people are genuine, but it's definitely on the rise. I think we're probably at five drive-offs per site per week now, whereas historically it was probably one to two. Well, the Office for National Statistics earlier in the week suggesting that petrol and diesel price is one of the main drivers behind the 3.3 % rise in inflation for March.

7:36Naveen Das, senior commodities analyst at Kepler, told us earlier this week on what a continued restriction in global oil supply could mean for countries around the world. The more this rumbles on, the actual outright volume of oil lost will become very difficult to square and it will have to lead to government mandated or organic forms of what we call demand destruction. So curbs on mobility, just in order to balance the world we live in. And this is how the Chancellor, Rachel Reeves, responded to all of that. We are continuing to plan for every eventuality, but we must deal with the economic costs that are already being felt.

8:15I reject the demands for a knee-jerk response to this crisis that would put household finances at risk through higher inflation and higher interest rates. Every choice that I make will be about keeping costs down for families and for businesses. Gervais Williams in the studio with me here from Premier Martin. Morning, by the way. Real pleasure to be here. Where are we then this morning with oil in particular and the oil price? Because it was going back up above$100 a barrel, wasn't it? That's right. Brent's back up over$100. It's been up over$100 most of this week. Actually, what's been interesting really isn't just that the oil price has been going up, but actually the shortages, which we touched on by Nunita just now, are beginning to build.

8:55It's not just jet fuel. We're beginning to see real problems with fertiliser and particularly naphtha, which is the basic feedstock for the plastics. About 60 % of the Asian supply of naphtha comes from the Strait of Hormuz. So there's going to be real shortages of all sorts of things. And on that food price point, we saw Simon Roberts, the boss at Sainsbury's, talking about that yesterday. Absolutely. Sainsbury's have seen further growth over the last 12 months, but most particularly they've actually put, you know, the cost increase has been coming through, so they're not expecting, the profitability has been coming under a little bit of pressure.

9:25They're doing a great job, but it's a tough world. Linda Yu, economist at Oxford University and London Business School. Linda, morning. Great to have you back with us as well. Morning, Will. I guess 3.3%. I mean, it was a shock a bit to the market that had come through already, right? Would that be fair? Yes, I think so. I mean, unfortunately, the war's been going on for about a couple of months now. But the feed through already in March inflation is seen in our figures, as well as in the Eurozone. They also saw an uptick of inflation of 2.6%. And the drivers are exactly as you say, because without food and energy, core inflation actually fell in March to 3.1%.

10:06So this is indeed being driven by, well, as we know, the Iran war affects not just energy prices, which is up 30 % since the start of the war, but also food prices because it's impacting the transport of fertilizer. and that's what we're seeing reflected in the figures. But the Bank of England will be particularly worried that a measure of services inflation, so that's domestic price pressures, that's a measure of feed-through and that's the biggest part of our sector, of our economy, that increased to 4.5 % in March as well. So people, I'm afraid, are anticipating that inflation is going to be here for a little bit.

10:50So basically exactly what Namisha was saying, people are changing their, people are actually, they're not talking about changing their prices, they are actually changing their prices already, it looks like. Yes, and that's why I think the Bank of England is meeting next week. That is something they will be paying close attention to. But I think that clip from the Chancellor, the issue is, of course, cost of living. That's going to be the trigger for more fiscal policy measures, which is the, that's the better response to a supply side shock. So far, we haven't seen very much of that. But this recent shock is actually being layered on top of what the ONS, the Office for National Statistics, also released alongside the inflation figures, which is compared to the start of 2021, prices are up 30%.

11:38So as a level effect, I mean, that is a huge increase in prices because firms have no choice, but that's really squeezing households' disposable income. Yeah, it's interesting, isn't it, really? When you look at it, I mean, we look at the move of oil prices just in the last four, six weeks since the Iranian conflict began. But actually, they were rising before that. So Brent is already up 75 % this year to date. So our energy prices already kicked on quite hard. And on top of that, yes, some prices are increasing, but there's many more to come. Is that the worry, Namisha, that there's more to come?

12:14yes it is as much as not knowing what's to come um it's just difficult to plan ahead isn't it you know we have to think about oh do we do we increase our costs if there's if it's a short-term thing okay we can absorb some of the costs but if this is going to go on and on at what point do we increase our costs to our customers you know and we deal with a lot of high street chain supermarket chain restaurants and bars and it is very very difficult to know what to do really. And in terms of interventions support then we heard the Chancellor as Linda was saying just talking around that issue there I mean is it around energy where businesses and businesses of your side need support?

13:00Yes and it never seems to transpire it never seems to come down to manufacturers it's usually the high street retail that gets the help manufacturers have never even during the ukraine war and at the beginning when we were really suffering um we just never have had actually and we have a 10 000 square foot factory and sitting born in kent and um no we don't with regard to rates and energy we just don't get the support anyway so we're just going to manage linda yesterday we also had because it's one of those weeks where we get tons of data isn't about what's going on in the UK economy. We had the UK public sector borrowing figures, i.e.

13:37the amount of money the government's borrowing and government debt and the cost of that debt. What did you learn from that about the government's ability to respond and help not just companies, but I guess our listeners too, households as well? So interestingly, the ONS said that borrowing as a share of GDP, because that's always the important thing, if you debt always has some degree of context. So year to date, so from the year to now, it was 4.3%. It was actually the lowest since 2019, fiscal year 2020, just before the COVID pandemic. And that is because interest rates have begun to come down.

14:16And the third biggest category of spending for the government is actually debt interest payments on our existing debt. However, there's always a however, I'm afraid, because of the war in the Middle East for March, the public sector borrowing figures exceeded forecasts and that hit just over 12.5 billion pounds. So taken together, if it wasn't for the Iran war, we were beginning to see the benefits of interest rates coming down. Because remember, the biggest categories of spending are the NHS social care and then benefits and welfare. But because about just under a third of our debt is linked to inflation and therefore interest rates, and a lot of people have commented on this before the eruption of the war, We were beginning to, it seemed, move on a policy normalisation and public sector borrowing figures were beginning to reflect and benefit from that as well.

15:15Well, Gervais, your colleagues in the city often, you know, try and predict these things, don't they? Look at people's jobs to look at how many interest rate cuts they think might be coming up in any given financial year. How is that maths? How are those projections changing given all of this? Yeah, so as Linda says, just over a month ago before the Iranian conflict began, interest rates were expected to be cut in the UK. They were expected to cut in the short and the medium term. That didn't happen in the last Bank of England meeting. And if anything, people are worried that interest rates are going to go up from here.

15:48I think that's a mistake, actually. As Linda says, basically, extra costs in fuel mean that we go to the pubs less. So the net effect is actually that we're going to see a slowdown in the economic activity. If anything, in my view, we should be cutting interest rates. Linda, what's your take on that? And I think that is exactly why Ontario policy is a bit stuck, right? Because the one thing that the Bank of England and they will be very conscious of is they were criticized for saying that inflation was transitory at the eruption of the Russia-Ukraine war in February 2022. And it turned out that conflict lasted for quite a long time.

16:22Inflation stayed high. However, it changes expectations. it doesn't actually change the source of the inflationary shock. And they are expected to hold rates next week at 3.75%. They could raise rates. But remember what I just said about expectations. They are a bit stuck because once you raise rates, you change the path of interest rates. And once the central bank starts that course, they don't like to change. So in other words, they're on a rate cutting path. If they were to change, that really signals they are concerned about inflation lasting a long time. That changes people's expectations.

17:01Wages then go up and prices go up. And then you actually bake in higher interest rates and inflation. That's called the second order effect. So I think they will hold, but just conscious they were under quite a degree of pressure before. The better route is for fiscal policy to take the brunt. but well I think we know the big buts there that will have to be paid for by tax increases which really doesn't help people either or businesses And one of the sort of outside impacts if you like driving those decisions too which we will talk about in just a moment and it's been kind of lost a lot hasn't it because of what's going on with the war in Iran is what's going on with the employment sector particularly employment for younger people and we're going to talk about that in a moment and around AI too because lots of news from the biggest companies on the planet overnight Wake up to money from BBC Radio 5 Live.

17:52Yes, Meta, the company behind Facebook, Instagram, WhatsApp, will cut thousands of jobs next month as it spends more than ever on artificial intelligence projects. The company told employees in a memo on Thursday that it planned to cut 10 % of its workforce, roughly 8 ,000 staff. It said it would also not fill thousands more jobs it had been hiring for. Here's our North America business correspondent, Michelle Fleury. The context is everything here, right? You've got the tech industry grappling with major changes as they kind of rush in this kind of gold rush style fashion to develop artificial intelligence infrastructure.

18:31Microsoft and Meta, some of the biggest spenders on data centers. And yet at the same time, we're seeing these huge layoffs. I think part of that is that when you're laying out that much cash effectively to kind of build the building blocks of AI, you're trying to kind of cut back in other areas. Now, Mark Zuckerberg has been on the record in the past saying that the use, in fact, of artificial intelligence within the company would lead to more efficiencies. And maybe that's part of what's driving this. I think, you know, there's going to be a lot of questions from people next week when the company reports its results.

19:10Yes, those will be talked about, I'm sure, here on Wake Up to Money by Sean. Gervais, Michelle referenced Microsoft there as well. Not immediate cuts from them, but also looking to cut a similar amount of staff, really, or sort of 7-8 % of their workforce through voluntary redundancies as well. What's going on here? Yeah, it's been interesting, really, over the last 18 months, really, we've seen unemployment in the US, in the UK, gradually rising, actually. Of course, it reached unusually low levels 18 months ago, two years ago. So from that point of view, perhaps it's normalising. But also companies have been seeking to keep profitability going.

19:42And they've been looking to cut staff along the way to actually keep profits going up. And that's been a feature up to now, clearly with the extra pressures of oil prices, with the extra pressures of the Iranian conflicts and the supply problems. That's leading to a renewed process, not just in technology, where there's a large investment in AI, but most particularly right the way across the piece, actually. Linda, I thought every time I heard from these big tech bosses that it was all a race about people, you know, getting the cleverest brains in your building, that artificial intelligence was basically all about having the best people who could do it, the best developers who can do it.

20:20Seems like that part of the race is over and there's a new one starting. Yeah. So, you know, we always debate whether AI is labour replacing or labour augmenting. And I think the current trend is you do need the best people. you just need fewer of them. So, you know, AI, for instance, like Cloud Code, you don't need as many people to check your code, write your code. I know a company that stopped using Salesforce because Cloud Code wrote the equivalent. So I think what you're seeing is, you know, both of the things that Michelle Fleury was mentioning, one is a reallocation of money, but that's almost, I think, the headline, whereas what's really driving it is, and you see this across smaller companies as well, they just need fewer people because of the efficiencies from both process and even encoding.

21:19And can I just say, Microsoft's offer of voluntary redundancy has a really interesting criteria. It told employees it would offer this option to long-serving employees whose years of service plus age total 70 or more so right so yeah so you've got to be over over 35 and have done 35 years plus at microsoft say to to get your sort of what your max payout uh to qualify to take this voluntary redundancy i'm still trying to work out the formula as in what is the saying about who they're trying to offer? Let's hope Copilot can work it out quicker than we can off some of their spreadsheets there as well.

22:06Namisha, what do you make of this? It does feel like, especially listening to Linda lay it out there, that we've only just begun to see the kind of disruption to particularly entry-level jobs, it seems like. Oh, I think absolutely. A lot of the entry-level jobs would be doing, if you like, you know a lot of the dog's body work especially if you put it into sales if we had somebody in the office in the sales department at a young age learning about sales they would be going through spreadsheets and contacts and organizing them and emailing people and creating emails etc but we've we've started recently using ai to do a lot of that we've actually built a trade portal that we've wanted to do for a long time for B2B businesses to be able to order online separate to our B2C customers, something that would have cost us£10 ,000,£20 ,000.

23:04We've actually managed to do that in about two and a half weeks in-house. And how's that gone? Absolutely brilliantly. Having done the portal, we then used AI to scrape years' worth of contacts that we've amassed from trade shows. And what that's done, it goes through our contacts using scraping programs to remove dead accounts. And it's like having a smart assistant on tap. Once we've reduced our dead accounts and we have live accounts, i.e. businesses that still exist, we've then sent out a link to our portal. And within five hours, we had four accounts opened online. Right. So we see, obviously, what's happening with Meta.

23:52But it is, I think we are just learning what it's allowing us to do is to keep our staff costs at what it is now, rather than having to employ contractors to build websites to do all these things for us. As I said, it would have cost us between£10 ,000,£20 ,000 to do what we've managed to do within a few weeks. And of course, those costs then can have an impact on price if you're not having to, presumably. Yeah. Linda, I guess that's the flip, isn't it? The productivity gains that, you know, there's a great example of them that could come from this. Yes. And I think that's really what's been the missing piece of productivity for all countries over the past, since the 1990s, 80s, where productivity has stalled.

24:34It's called the solo paradox, where Robert Solo, the great economist, said you can see the computer age everywhere except in the productivity data. and the one period in which you do see productivity increase was the late 1990s in the US and the key is exactly what we've just heard and what we're beginning to see is adoption. So if AI is widely adopted and it's able to increase efficiency, it could lead to lower prices because of lower costs and raise output. I think the challenge for lots of people is what happens to the workers who are displaced and history tells us their new jobs will be created.

25:17I think our concern is when you're in the midst of it is how good are those new jobs and where exactly will they come from, even if you feel that probably is the case. because with greater efficiency and productivity, incomes go up and there should be more demand, which should induce more investment, a virtuous circle. I want to come back to Namisha on that and about how you kind of practically do that as someone running a company, but Gervais, quick thought. The key issue is that productivity hasn't been improving for a long period. And the nightmare about that is you can't really justify paying wages beyond inflation on a sustainable basis.

25:51And we need actually to drive productivity so that we can pay increased wages so people can deal with the cost of energy, the cost of extra things going up. So it's an absolutely essential feature of where we need to go. That element, Namisha, that Linda was just talking about at the end there as well, go back to your example, you know, the very entry-level job, kind of gone at your company. How do you kind of have the confidence, I suppose, as a business owner to hire someone at that next rung up where presumably there's more responsibility and you haven't kind of got them in-house, you haven't got them in your culture isn't it more of a risk then hiring someone to do something perhaps more critical to the business who you haven't seen and got to know as a person and all that kind of stuff this is sounding awful it's going to sound awful but to employ somebody young who doesn't have any experience versus somebody who does have some experience um and given it's costing us as much to employ somebody without experience as experience now with the minimum wage going up um you know it no we would rather have somebody who has had experience because you spend a lot of time training somebody and teaching somebody having said that um the younger gender the less experienced are more experienced in a in using ai so i think those who are used to the traditional methods of working especially in an office environment as opposed to production in our factory is more used to using computers even even basics of using a computer the younger generation we find are better at it and adapt more quickly to using AI within their job description really interesting and interesting that is another pressure though Linda isn't it as I sort of cycle back to that again that those employment figures haven't gone away we're gonna we're gonna get them from the ONS again at some point and presumably the debate will restart it feels like that's been sort of knocked aside by the Iran war.

27:52But it looked like it was going to be the talking point of the year, really, from an economics perspective, especially what was going on with young workers. Yeah, absolutely. And so this week we got unemployment figures and actually the unemployment rate fell to 4.9 percent. This is three months to February. And the expectations were that unemployment would actually stay unchanged at 5.2 percent. And unfortunately, the drop is driven by those who are not actively seeking work. So the economically inactive, which is a long standing issue, because the UK is one of the few countries where this rate hasn't really come down very much compared to other economies since COVID.

28:35Because if you're not seeking work, you're not included in the jobless figures. And that is, I think, reflecting discouraged workers. Perhaps, I'm sure there's some link to what we just described in terms of AI as well. So yes, I think we are now looking at what the energy and approved price shock and how long that could last. But the underlying structural challenge in the economy is still there. And if I may, I think I did work out the Microsoft formula, Will, if you're of interest, which is assuming you started working at Microsoft at the age of 20, which is not unusual. A lot of people who do this may be, you know, 18 or what have you.