Moving the goalposts

0:00This BBC podcast is supported by ads outside the UK.

0:30at Whole Foods Market. How many streaming subscriptions do you have? Is it the same for your business? Avoid it by having all your business on one platform. Try Odoo for free at odoo.com. That's O-D-O-O dot com. Wake Up To Money from BBC Five Live. Hello, morning. Welcome to Wake Up To Money. Consumer confidence is apparently on the rebound. That's according to new data out this morning. So are you feeling a little bit more confident in your spending? We will be taking a look at that. Speaking of data, it's been a week where we've had news on jobs and inflation, so plenty for our usual Friday panel to work their way through.

1:08And it's back. And it's Arsenal's Premier League title. Arsenal, Coventry at the Emirates as the Premier League returns tonight. But three letters seem to be on a lot of fans' lips ahead of the new season. SCR. We'll try and explain what squad cost rules are and why they're already proving divisive. Wake Up To Money with Will Bain.

1:59What they are seeing in terms of our spending habits, are people feeling a little bit more confident about the money in their pocket? And yes, we will try and break down from my perspective, certainly, and I'm sure there are fans of other clubs listening this morning, the dreaded SCR squad cost rules explain what they are if you are sort of scratching your head a little bit as to how they work this season and why they seem to be having such a massive impact on the transfer market. In the run-up to the new season, would love your thoughts as we go through the programme as a result. 85058 is the text number for football or spending power or anything else indeed you hear throughout the programme this morning 08085 909 693 the WhatsApp number if you would prefer to get in touch with us that way as always as I say gather the panel of guests to look back on the kind of economic week if you like here on a Friday and Michael Wrightblatt back with us on the programme Michael's the founder and chief exec of the online fraud prevention platform Forta.

2:53Morning Michael great to have you back on the programme how are you? Good morning, Will. Great morning. And finally, normal weather. Yeah, a little bit cooler. Did you sleep a little bit better? Did you as a result? Much, much better. Good man. Remind people a little bit about the work that you guys do at Forza. So we work with global online retailers or pretty much any company that sells to consumers through digital channels and help them understand who is trying to defraud them online and who are actually just suspiciously looking totally normal consumers. that they should be working with. And I'm sure we're going to talk about kind of the economy impact on retail later.

3:30Yeah, absolutely, we will. So Michael's got a great kind of bit of insight across the board there, and he's always got interesting things to say about what's going on in terms of prevention and the new tricks up people's sleeves trying to catch companies out as well. So we'll pick his brain on that as we go through the morning too. Alongside Michael for the next hour, Judith McKenzie back with us as well. Judith, the partner and head of Downing Fund Managers. Morning, how are you? I'm not too bad. It's Friday, Bill. Yeah, I was going to say, you made it through another week, And yeah, it's been another week where it's been, I feel like I've said this on this programme a few times in the last few weeks, felt like it's been a lot, both domestically and internationally, for you guys in the city to get your heads around.

4:05Yeah, not just the last few weeks, is it? It just feels like all of this year and most of last year. So yeah, it's still going. And we will pick through some of those in just a moment as well, including what's going on with the US bond market. So US government borrowing and why that potentially might have an impact here. we'll get Judith to explain that and we'll probably get Francis Coppola to help Judith do it as well. Francis, the final member of our final Friday panel this morning, Francis Independent Economist and Banking Analyst. Morning, how are you? Good morning, I'm good. I'm watching two cats chase each other around the place.

4:37Your cat or someone else's? My cat, well, a cat and a kitten, they're chasing each other. So if you get noises off, that's what it is. Brilliant. Well, I was stalked by my cat this morning who decided, even though it was 2.35 in the morning, that it was definitely breakfast time. And he bellowed at me while I tried to have a shower before coming in this morning. So feel for you, Francis, in terms of the feline pressure that you're feeling this morning as well. Let's start talking UK economic, shall we? Somewhere else that perhaps was feeling a little bit of pressure this week, particularly with those inflation figures, I guess, rising.

5:12We heard prices for goods rising 2.9 % year on year in July. an expected figure, but a big jump from that 2.6 % figure in June. This is what Mike Hardy, the Office for National Statistics's Deputy Director of Prices, told Sean about all of that a little earlier in the week. It is mainly about energy prices. Inflation accelerated in July, rising to 2.9%, and that's the first time the rate has increased since March this year. And this was mainly driven by a sharp increase in gas and, to a lesser extent, electricity prices following this month's change to the off-term energy price cap. The rising gas prices was the largest for almost four years.

5:48And you'll know if you're a regular listener, it's one of those weeks we get all of these kind of numbers seem to come in together. So you get the inflation number and then you get a big whack of data about what's going on in the jobs market, everything from salaries to wages, what's going on with those, what's going on with vacancies and that headline unemployment rate as well. And the vacancies number, I guess, given the pressure that we've been talking about, well, for a year and a half here on the programme, haven't we, with our business guests about what's going on with hiring for various reasons, the number of job vacancies falling to its lowest level in more than five years in the three months to July.

6:21Judith, why don't you lead us off? Which of those did you think was most significant and why? Well, it's not so much about looking backwards, I don't think, because I think we knew that the inflationary numbers could quite easily jump up for this month because of the off-gem price cap coming off. there's about a 13 % increase in the household energy costs. So these numbers really are backwards. For me, it's more about the caution looking forward. And I'm worried about food inflation. And I think I've been speaking to you maybe a couple of times over the last two months, and you've had some great specialist farming guests on, literally from the field as farmers and commodity buyers.

7:05And even this morning, the headlines are that the Ukraine situation is meaning that grain prices are hitting all time highs. So although these inflationary numbers are concerning, I'm even more concerned about the next quarter. Frances, do you share that? Yeah, absolutely. And because it's food inflation, it's actually, you know, it's a supply shock. it's actually quite hard for the Bank of England to do anything about it without causing misery for people really I mean this is really quite basic stuff so it's it's a difficult call for the Bank of England this one it's the spread of those pressures Michael I think isn't it as Judith says I think even just me personally on the program thinking off the top of my head as Judith was saying that I've heard from a wheat farmer saying you know yields down earliest ever time they've harvested we had someone from one of the big fish markets down in Cornwall the other day saying that the heating up of temperatures there was changing what stocks they had of things and the prices of of that as well and that's before some of the damage that we know has been done by drought to lots of farmland in in places like Wales and the southwest of England was kind of the sort of the real kind of agricultural hubs in terms of livestock farming as well so So do you share, do you round out, I guess, a trio of fears for the worst maybe still around the corner in terms of price rises?

8:33I think if you look at retailers' effect or the effect on them, it kind of hits in both ways, right? Consumers have less money. And as the inflation goes up, all of their prices, all the retailers' fulfillment prices are going up. I think that drought may be affecting some grocery or that is less of our area or maybe less impacted because the demand may be kind of more consistent. But I think as retailers are starting to plan to this, they need to materially optimize their operations. and we're seeing more and more conversations happening recently where they're coming to us for using our peers too because we really need to improve.

9:23Yeah, really interesting. And yet we've got this note this morning or this bit of data this morning, Francis, from GFK who do this Consumer Confidence Index every month. Their FT's headline on the website this morning, UK consumer confidence rises to highest level for two years and their sub-deck, good weather and the burn and bounce, as they put it, brought on by a new prime minister, continue to have a positive effect in August. Hear what Judith's saying about all these numbers as a result being backwards looking, but how do we square those two things, the squeeze that we fear people are under and yet perhaps, I don't know, some resilience in terms of how shoppers are feeling in particular?

10:04Yeah, it's an interesting one. I mean, it's a funny thing. Although we hear terrible stories from farmers about drought and we've all got hosepipe bams and what have you, but actually having very good weather does tend to make people feel quite good. So there's that, that bizarrely, just the fact that we've all been able to get out and enjoy the sunshine, actually tends to increase spending a bit and make people feel a bit better about everything. So it's just one of these bizarre things. And as you say, the burn and bounce, he is very different from Starmer. the previous administration I felt actually had quite a depressing effect simply because they just constantly seemed to be under this pressure to kind of prove that they were good on finances and this constant metric about fiscal headroom and so forth and that's gone very quiet for the moment and that might be playing into it as well perhaps but it'll be back in the autumn when the budget comes Judith, build on that?

11:09Yeah, when Frances was playing with our cats, I was looking at the actual data here. Sorry, nothing against your cats. I've got a dog, obviously. My dog can take your cats. But just looking at it, the data was conducted between the 30th of July and August the 12th. So this is real. I've got a lot of respect for the GFK, by the way, so I'm not having a go here. But this is taking a very, very small sample period. it's 2 ,000 people and as Francis says they're all in the departure lounge waiting to go off on holidays so everybody's feeling good as I say I'm maybe being overly cynical but I think it's too small the sample size yeah interesting and we'll get some retail data from the ONS at 7 o 'clock this morning won't we as well I was going to kind of ask you that as well then Judith as a sort of follow up to that do you think any sort of silver linings pick which cliche it is for what's appropriate for how people have been feeling through the summer, do you think that is all in jeopardy?

12:13Or are there any signs of sort of positivity, reasons for sort of strength that might offset some of the drags that you guys have already illustrated as we go into the autumn? I'm going to dig about here, but I suppose the one thing that I look at is the companies that we meet on a daily basis and invest in, and that's UK smaller companies. They do have a little bit of international exposure, but they are typically UK earners and you know by and large they're doing all right they've got good cash flows they've got great management teams that are quite diverse and able to navigate through macroeconomics and and and they're they're actually quietly confident what they want is certainty and they want certainty from the budget that's coming up I think they can probably navigate the macro their balance sheets are good so that's the only that's the only chink of light that I can see really.

13:06Michael, you spend a lot of your time, as you were saying, chatting to retailers. Just sort of, I don't know, what's the mood? When you go in, are people going, oh God, Michael, you know, the head in their hands. Thank God I can have a break and talk about fraud instead of thinking about all the other terrible things I've got on my plate. Well, unfortunately, fraud's also going up. So they do have a lot on their plates. I think there's a large variety of retailers that are doing, and maybe they're in a different mood. I think we've seen a rise in retail bankruptcies, insulancies recently, both here in the UK.

13:39There were a couple of large ones in the US earlier this year. So they are feeling a lot of pressure in different areas, both from international competition. Markets are more global now in the ability of consumers to buy from them directly. and when we talked about the fact that their cost is going up their ability to pay their employees more and thus retain the better ones is going down I do think that most of them are more squeezed maybe some of my recent conversation were impacted by weather so hopefully that summer bounce or combination of the burn and bounce and the summer will impact the holiday season that everybody's planning for.

14:25Fraud going up. Any reason for that at the moment? Well, there are two. One, the economy is not so good. And that's a constant, like whenever that happens, there are more people that are conducting different types of fraud from both turning proper criminal and let's call it kind of a friendly fraud or victimless crime as sometimes these consumers think about this. And that's falsely claiming that something that you bought, you actually didn't and hoping the bank will deal with it, where usually the cost falls on the retailer or just sending stuff back and doing kind of various return abuse schemes.

15:06But the second impact is fraudsters are leveraging AI substantially faster. So we've talked about this a year ago. We're talking about this and we're seeing a massive increase in some cases over 100 percent in attempted fraud. And are we taking that seriously enough then as a country? Well, I think it's a global issue. Definitely when we're talking about credit card fraud and online fraud in general, which is our expertise, which is often very, very hard for a single country to deal with. And I think a lot of it is also providing retailers with the education and tools for them to understand that this is coming.

15:44A lot of them are sometimes surprised only when they found out that the money is not there. Francis I wonder whether you might be best placed but everybody have a stab at this Judith as well we had a question come in if you can just um as I often say just stick in even if it's just your first name and where in the country you are helps give us a kind of bit of a sense but on 85058 we've had I've heard the BBC mention vacancies falling a couple of times as if it's a negative thing I'm right in saying this is the same as unemployment at an all-time low why uh the negative connotation in the reporting Francis is it am I right in saying it's the pace really at which the vacancies have been slowing down and suggest that it's actually people not hiring rather than sort of a natural filling up of employment, if that makes sense.

16:26Yes, that's right. It's just generally related to the, until now actually, sort of quite bad confidence figures we've had and some of the pressures in retail and things like this related to that. So some quite bad negative feelings and performance in the economy and employers start cutting back on hiring, battening down the hatches and saying, well, we'll wait for things to improve, whatever. And that's really what's happening here. So it's not a good news story. And as Judith said, you know, potentially we have more problems to come, really. Judith, anything you'd add in there? Yes, the same as really.

17:06So I think what we've seen, it's been national insurance costs for entry level. good old AI putting the question mark over graduates and just general caution in the market as well about hiring because of the economic background so that's the way I read it so sadly it's not positive news. And Michael as the employer here just anything you would add in terms of what you're seeing and your sort of appetite for employing at the moment? Well I think people are trying to figure out who they need to hire because right AI is impacting what you need to do as a business versus what AI can do for you. I mean, we here in London, what we've done recently is we started an apprenticeship program, which is something we've never done before, of getting people that are high school graduates as they go to university to part-time work for us and part-time study.

17:56So we've opened three positions for that because we need people that are thinking differently. So I think it's a win-win for both. and actually by talking to the university we're collaborating with it looks like there's a kind of an increased interest from the industry to do this. Really interesting. Right, here's a bit of positivity for us as well that's just come in. On the text, at the same time on 85058, Avid from Dorset, please think about the hot weather and also talk about the positives of the hot weather the last two months here in Lime Regis, Charmouth, Bridgeport. It's been Christmas every day, pubs packed to capacity, especially beer gardens, eating out.

18:34If you've not got a booking, almost impossible. Every event like the Jurassic Fields Festival, a huge success, all holiday rentals full seven days a week, as though it's been a Saturday night. So there you go. There's a little bit of upbeatness for us guys going forward there as well. Someone's been riding the boom a little bit. Unfortunately, we're going to turn back to the gloom because what's going on with the geopolitics around us has been one of the big stories of the year so far, hasn't it? Particularly the war in Iran. What's that done to energy prices in particular? Because obviously all of us have to use energy in some way.

19:12Alan Gelder, Senior Vice President of Refining Chemicals and Oil Markets. Wood Mackenzie was speaking to Sean a little bit earlier on about, I guess, this gap between the price of crude oil and the diesel fuels our economy needs. at the moment that how much crude oil the refineries can process is constrained by the Middle East conflict plus those refineries that are not operating in Russia so a big exporter of diesel to the rest of the world it was Russia they now have an export ban to bring more supply on means the need for more crude oil so it's the resolution of the Middle East conflict It needs the Russia-Ukraine war to calm down.

19:55That doesn't look like it's going to happen. Or it needs new refining investments. But those are really long-term projects, so people aren't going to build new refineries based on what's been happening over the last few months. And Judith, overnight, the White House talking about ramping up economic pressure on Iran, saying it's going to go after people who don't abide with them. Basically, you're with us or you're not with us. It does look like the economic spillover from some of this geopolitics is a long way from gone too. Yeah, we've got war, we've got inflation, we've got debt, we've got oil going up, we've got war again because we're fighting over the oil.

20:32So no, it's not, it actually spells widow, by the way. So it's not a good, there's only a couple of things that make us get out of this. And that is the Iran situation, sadly. We keep coming back to that. And then we're just trying to second guess what political leaders are going to do and who blinks first. Michael, how much impact is that all having? Has that all had energy in particular, I'm guessing? Right. It's all connected. So if the shipment cost of retailers or the suppliers of the retailers, those suppliers, those suppliers, right, the world economy is very, very complicated. So one conflict far away from you, even if you're a local business here in the UK that only manufactures locally, still affects you.

21:17I think, right, we talked about 20 minutes ago that inflation's up mainly because of energy. So people have to spend their, and salaries, I think, are just slightly up now kind of in real terms. So people are not making more money and they have to spend more of it on their own energy so they have less disposable income to go to retail. Now, I do think that we've been going at it for a while. So some retailers have shifted how they operate and in most cases are kind of over that initial shock. But now it's just a constant drag on the cost of their operations. That's such an important point, though.

21:56Just explain that through the start of your point there, Michael, as well, that people might not automatically think of your business, you know, in cybersecurity and put it together with the problems that retailers are having with their supply chain. But that's how interlinked everything is. Well, think of it that retail generally, right? Some are better than others, but generally the low margin business, right? So we're a low profitability business. You have a lot of costs to do what you're doing, right? Consumers just see the actual price of the product that may sometimes seem higher, but there's a lot that goes into fulfilling this.

22:30So if you add 1 % here and 1 % there and 1 % there, it can actually cut your profits by about 30 or 40 or 50%, right? So if we're saying just from our own part of the retail supply chain is if frauds attempt are going up by 100 percent and successful frauds been up by about 30 percent, it means the cost that their retailers are paying for it, which is about 1 percent of their operation on average as a whole, is now 30 basis points. It's 0.3 percent higher. That cuts their profits a lot so they can hire less people and grow their business. And it forces them to be substantially more effective in what they're doing.

23:06And that then, Francis, impacts, you know, all of that into what we sort of overarchingly talk about as growth. Yeah, absolutely. It's like lots of different things in different areas just all come together to just depress everything. It's the same, actually, with household bills. If you think about it, it's not usually one item that kind of means you have less money. You know, the money disappears before the end of the month. It's several different aspects, different types that all add up to more money than you were expecting to have to fork out. It's the same thing. So and that just generally tends to have a depressing effect on growth.

23:44When a lot of money of business and household money is getting tied up in paying for basic essentials, they've got less of what we call money for what we call discretionary spending. and actually where growth comes from tends to be discretionary spending really yeah so things that we don't have to have in our lives exactly in day out um i want to get you and judith before we get to the news here as well and we have to let you go just to explain what's going on with the u.s bomb market judith do you want to lead us off on here so we get early in the week we get the treasurer sorry the treasury secretary scott besson so the equivalent of kind of the chancellor are there.

24:24He steps in, right, decides to start buying massive amounts of long-term US government bonds, so 30-year treasuries, as they know. Why? What was the rationale? And then we'll come to the impact. Okay, so I'll try and break this down simply. So long-dated bonds, the 30-year, normally don't tend to be as volatile because you're buying a bond that's like got a 30-year duration. So to see that spike up was a little bit concerning. But it was basically, it's a barometer for how confident people are feeling, investors are feeling about US debt. And US debt is, I have to get this number right, I'm sure Francis will keep me right.

25:06It's just going through 40 trillion, isn't it? That's it, 40 trillion. I get my billions and trillions mixed up. So it's just gone through 40 trillion, which is an all-time high. So the markets were getting a little bit nervous. about that and the bond yields spiked up, which is basically, although it sounds like a good thing, it's a bad thing because it means that people want more return for the risk. And so what the US government did was step in and say, well, we'll get those prices down by actually buying bonds. So it's a bit like using your credit card to pay your mortgage is probably the best analogy.

25:47So you're not actually doing anything to reduce debt because all you're doing is loading debt onto somewhere else within your economy. You're just trying to change the price of that debt for a period to buy some breathing room, basically. And so, Francis, the impact potentially then here in the UK, that I guess for our listeners this morning is the most important and interesting bit because it not only didn't really do what the Treasury Secretary wanted to do. So it did bring down the yield, the interest rate, if you like, down a bit on those bonds. it's now bounced back again and it's been dragging everybody else's bond yields.

26:22So, i.e. the interest rate the government's got to pay out to people buying that debt, including our own, and that can have a big impact on consumers pretty quickly. Yeah, absolutely. I mean, the US Treasury is trying to intervene basically to control bond price movements and failing because it's actually not that easy to control bond markets. Someone will learn that at some point, I think. I think people would have learned this by now. But anyway, that's what they're doing. But as Judith said, they're not actually doing anything about the debt at all, because all they're doing is exchanging long-dated debt for short-dated debt.

27:05They're issuing treasuries to refinance 30-year bonds, which isn't a stunningly sensible move anyway. So there is a confidence thing about how competent is this US government And that's affecting all sorts of things. But I think also there's a structural change here. The fact that it's 30 year, this long term debt that's spiking up suggests that a worry about the future, about the long term future of the US economy and by extension, the economy of the entire Western world. And I think that's why this is affecting not just American bond prices, but bond prices across the peace, that there's a feeling there's some kind of structural change going on of which the Iran war is part and the Ukraine war is part.

28:00that there's a real major geopolitical shift that potentially means the role of the US in the world's economy is going to change and that that will affect all of us because we kind of hang off the US. I was just going to say, Judith, just on that, just some of the things that it can impact. I mean, obviously, we're going to hear about the government's own debt position a little bit later on this morning. Obviously, it impacts public finances, but consumer finances too, in potentially in consumer borrowing rates. Yes, yeah, yeah. So there's a direct correlation between the bond yield ultimately and what we pay for our mortgages.