Taking A Hike

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1:06BBC Sounds. Music, radio, podcasts. Wake Up To Money from BBC Five Live. Hello, welcome. It is Wake Up To Money over in the United States. They voted unanimously to raise interest rates for the first time in three years. What might we do here in the UK as the Bank of England makes its decision today? Also, something for David Bowie fans out there today. We're going to hear from an early friend, a musical collaborator, as new demos and songs made available to stream from today. Wake Up To Money with Sean Farrington. Good morning, Wake Up To Money on BBC Five Live. Thank you for being with us this morning.

1:52Let's get straight into the stuff that's making those headlines this morning about interest rate moves around the world. Could there be some here in the UK today? It's certainly up for debate. There are expectations, there always are, but you never know until noon on that Thursday where the Bank of England and its Monetary Policy Committee, who each have a vote about what should happen next with interest rates, get to decide what the direction is that it will go. Will it be kept the same? Will it be cut? That doesn't seem to be a topic of conversation at the moment. as much as Donald Trump would like that over in the US, or will rates go up, which is what the expectation is for sure over the coming months.

2:34Will that be what happens here today and the ripple effect that that can have on the cost of borrowing for people in one way or another? I've got Tina Smith with us this morning, the chief executive of Ricoh's international business. Ricoh, of course, the electronics company known for its printers, plenty else besides. Tina, very good morning to you. Good morning, Sean. I mean, you're boss of RICO's international business. Where's home for RICO? It's Japan, is it? Yes, the headquarters are in Japan. I'm part of the Europe, Middle East and Africa team. And specifically, I look after Middle East, Africa and the slightly more far-flung elements of Europe and Central Asia.

3:13So when we talk about interest rate decisions around the world, and we've got one here in the UK today. We had one last night over in the United States as well. What's the mood at the minute from businesses? Can you handle a rate rise? Are you concerned about price pressures getting a bit too much and actually these central banks need to step in and put up interest rates and dampen those growth prospects a little bit? Well, I think it's fair to say, like all businesses, obviously we're a global business, but we're operating against a backdrop of a lot of market headwinds. So obviously inflationary pressures and obviously global instability, conflict, et cetera.

3:53I mean, I think, you know, the most successful businesses are the ones who kind of keep steady as she goes. You know, we can't sort of pivot every two minutes on an individual interest rate decision. And I think our focus is very much on the future, investing in growth, supporting customers, delivering long term value. So in that sense, you know, we can't make knee jerk decisions based on, you know, an interest rate decision in the UK, US or anywhere else. And I can see the difficult position that the central banks are in. They're looking to kind of calm inflationary pressures, but no business needs shock.

4:33So I think the more steady, I mean, again, if what happens in the UK is what is anticipated, then that kind of steady-as-she-goes kind of like approach probably benefits businesses, to be honest. Got Geoffrey Yu with us as well, our senior macro strategist at the American Bank BNY, Geoffrey Morning. Good morning. So what are you expecting today from the Bank of England? So I expect them to stay on hold. It's pretty clear that there are inflation pressures building around the world right now. The Federal Reserve was clear on that overnight, but there's perhaps just enough restraint, especially in the labour market, as something Governor Bailey likes to say, to keep them on hold for the time being.

5:17But the markets are pretty much in alignment. I'm looking at about 9 % chance of a hike right now. So a hold is the base case. Right, interesting. I was going to ask you what your odds were almost on that, because that does change, doesn't it, William? When I was just introing this and it occurred to me I needed to say, well, they could cut rates, but the expectations around these things are sort of quite important in the run-up as well because that's how people are making their business decisions, their household decisions. They're not hanging around till the beginning of spring next year to see where interest rates are.

5:54People start thinking and making decisions ahead of time, don't they? Certainly, and that's where the guidance comes in from the governor and also from financial markets. So if you want more odds, markets are now expecting about 93 % chance of a hike in November. So that if you're looking to switch mortgages around that time, perhaps time to make a few decisions. And if we go further out to next year, that's where I think the pricing is very, very aggressive. So by July next year, markets are looking at close to four hikes in total. So we could get rates closer to say four and three quarter percent.

6:32That I think is taking things a bit too far. I think globally, after the next high call to, of course, subject to external conditions and the conflict, perhaps growth and inflation will slow down enough and force central banks to just take stock and wait. Well, let's see what we can learn from the decisions made by the United States central bank last night. And the comments afterwards can often be with those, the guidance about where they might go next and the concerns about the economy can sometimes be the more interesting thing than the number itself. But the number is certainly making headlines in the United States because the Federal Reserve there, their equivalent of the Bank of England, voted unanimously to raise interest rates for the first time since 2023.

7:19Donald Trump, not a fan of that. He's wanted them to be lowering interest rates and boosting the economy for quite some time. But the chairman of that Federal Reserve, Kevin Walsh said that inflation had been too high for too long. He outlined his rationale for the decision. Inflation remains elevated. Today's policy action will support a timelier return to the committee's 2 % goal. This committee will deliver price stability. So he's been clear tackling inflation is the top priority of the Federal Reserve. And President Trump, despite his objections to those rate rises, won't get in the way of that.

7:59I don't have anything for you on discussions with the president. And I'm not a Wall Street newsletter. Part of the independence of the Federal Reserve is we stay in our lane. Independence is a two way street. We'll let people that do trade policy and fiscal policy stay in their lane, too. That's how we can stand up here and calm the way we see them. Well, that relationship between the chair of the Federal Reserve and the president definitely seems to be a little bit smoother at the moment compared to how Donald Trump would be talking very personally about the previous chair of the Federal Reserve when he was saying he wanted interest rates to be lower.

8:40This time around, it's a more general comment about the wider Federal Reserve and not the individual in charge. And he says in a social media post, Donald Trump said that interest rates in the United States should be 1 % or less because we are the best credit in the world and then capitalized by far. Got William Lee with me, chief economist at Global Economics Advisors, economic advisors, former economist at the Federal Reserve as well. William, good morning. Good morning. Thanks for having me. Thank you for being with us. So just explain what's going on in the US economy at the moment. You know, we hear from here in the UK that American economy growing pretty strongly, that we'd, you know, in theory like to have a bit of that here ourselves.

9:21So why are interest rates going up in the United States when expectations are they might not just yet in the UK? Well, the similarity is that we're both facing extraordinary inflation, but the inflation is from the supply side. The war in Iran has resulted in energy shortages. The commodities have gone up. And so it's a very special kind of inflation. Unlike the UK, the United States economy is doing very, very well. GDP growth is extraordinarily strong. We are at full employment. And so I think the Federal Reserve decided to target inflation at this time because it's missed hitting its target inflation for the last five years.

10:00Now, you could ask the question, well, if they missed it for five years, what's the urgency? Why now and not sooner or later? And I think the reason why is because Chair Walsh comes in at a very precarious time to the FOMC as a new chair. He has a split committee. The last vote showed that three people wanted to raise rates and others were sort of on the edge and saying, well, let's see where the data will be leading us. Since that last vote, the data have not shown any kind of real break in overall inflation, although some of the underlying trends have gone down, especially the non-energy related prices.

10:37So those sort of mixed data put into question the Federal Reserve's credibility about being inflation fighters and its seriousness about bringing inflation back on to this 2 percent target. So I think the sociology of Kevin Walsh not having the gravitas of, say, Chair Volcker, who came in with an enormous amount of gravitas and credibility and really moved the committee to tighten very quickly to combat inflation. Chair Walsh, I think, has a more difficult task of trying to corral a split committee. And the fact that we have a 12-0 vote this time showed that it was a unanimous vote. And I think that is to his credit that he managed to get control over the FOMC.

11:21So the sociological elements as well as the fact that we have a new chair wanting to establish his credentials, I think led to the fact that we had a rate increase this time. Even though most econ 101 students would say, in the case of a supply side inflation, leave it alone because it's a transitory rise in prices and it'll blow over. What is the theory? Changing an interest rate isn't going to make any difference to how much the oil price is when there's a war going on in Iran. Precisely. And I think that's why, you know, in the 70s, we had that same problem. And I think the lesson from the 70s is that if you allow that supply side transitory inflation to persist for too long, it's going to be embedded into wage price spirals and embedded into the demand side.

12:07And that's the kind of thing that the Fed wanted to avoid at all costs. So, William, why are there these concerns about where prices might go in the United States? And how does the economy grow as strongly as it has with big inflation concerns? Because, again, here in the UK, the conversation might often be, you know, the price rises have been so much that it's been, you know, holding businesses back. The cost of doing business has been going up as well. So what's a bit different with the US? How do you grow as well? That's a great question. One of the interesting aspects about the United States right now is it's what we call a case-shaped economy.

12:51Enormous amount of spending is being done by those who own financial assets. And financial assets have done so well in the last several years because profits have come in tremendously high, in part spurred by investments in technology. The AI is just showing its strength now in the profits numbers. So those who own financial assets are doing very, very well. They're the ones who are going to the airports, buying business class tickets, going to Europe on very expensive vacations. But that's only 10 to 15 percent of the U.S. population that own these financial assets. The rest of the population, three quarters of the people, are living paycheck to paycheck, hand to mouth.

13:31And that's where you have a lot of agony about affordability. I just can't keep up with the cost of living. And they're having a hard time making ends meet, even though they are still employed. And so I think that split in the stratification of our society is leading to this mixed picture of enormous growth, enormous profits, enormous spending on luxury items and others who are having very, very difficult times meeting their costs. And by the way, the cure to affordability is not higher interest rates, but rather it's higher wages. And that key to higher wages is going to have to be more productivity and higher pay associated with existing jobs because existing jobs become more productive.

14:18William, thank you for your time this morning. William Lee, Chief Economist at Global Economic Adviser there, formerly of Federal Reserve himself. Tina Smith, boss of Rico's international business. Tina, those price pressures on the world of electricals, we were talking about this a little bit yesterday as we got our own latest inflation figures here in the UK where prices overall were rising a bit faster than they had been previously. Are you sort of seeing those pressures which have come alongside American growth because so much of that tech growth is out of the US at the moment? Yeah, no, absolutely.

14:54And I thought it was really interesting to hear the description there of kind of, you know, supply side transitory inflation. But certainly, yeah, we are seeing that. How would you translate that, Tina, into the realities of running a business? Because they're sort of all economic terms. What does that mean on the ground for you? Well, what it means is that the biggest impact that we have is that that kind of uncertainty is not knowing where prices are going to go, not knowing whether you can get components, products that you used to get or fuel for that matter that you used to get a certain price, not knowing what that price is going to do in the future, being impacted straight away.

15:29And I think the biggest challenge that that gives all of us is that it tends to, as humans, it tends to sort of say, oh, because I'm uncertain, I'm going to delay that decision. And that, I think, is where you get the real issues in business. I think that what we're seeing in business at the moment is that we have to have plans, we have to have strategies, we have to have ways of working that can weather that kind of up, down, up, down. And actually, in that sense, as business leaders, we need to stay our course. You know, we need to continue investing. We need to we need to stick with our decisions, even when we get these these ups and downs.

16:06And so I think that's the that's that's the biggest thing. I think the biggest thing I would say as well, it was very interesting hearing the prior speaker. But one thing I would say to any businesses listening now is that we need to avoid sort of knee jerk reactions to movements in price of components, for example, or movement in interest rates because, you know, I think one of the issues that is big, and there is a difference here between the US and most other parts of the world, on the employment side. So if you've got, if you're facing like a price increase, one of the easiest things you can do is to either delay or scrap recruitment.

16:42Obviously, in the US, they have a different sort of system of employment. It's employment at will. So in places like the US, you can be super flexible with your workforce. Elsewhere, you know, that's not the case. But do you notice that when you talk to say your colleagues and peers who are running businesses in the United States, compared to around Europe here in the UK? Is it vastly different? Vastly different. And that whole bit, I think, particularly, you know, in the UK, but also around around the world, but not the US, we do have a real issue here in terms of the scrapping of entry level opportunities.

17:15And I really, you know, one of my key concerns is that if, you know, It's the cheapest, quickest way to sort of reduce your costs temporarily. We are in danger of damaging our businesses more mid and long term because not bringing entry level younger people into the workforce. We're precisely excluding the people who are going to have the solutions to our future problems, who actually are going to be more instinctively able to embrace new technologies that are going to make us more productive, like, dare I say, AI, but not just AI. So you might see that as a bit of a risk of, you know, if we see an interest rate rise today, if we see one in the coming months, is that a risk?

17:56Is that businesses across the UK might react to higher borrowing costs and react in a way that makes it even harder for younger people to get jobs? Exactly. And that's what I think it's essential that we don't as business leaders do. I think we need to make sure we don't do that. At RICO, we've got a really thriving internship programme. And, you know, we will not cut that in the face of whatever headwinds. I think that's essential to our mid and long term success. Geoffrey, hearing, you know, what's going on in the US there and a growing economy. And if you look at the comments of the person leading that interest rate decision in the US, Kevin Walsh, effectively sort of making the case that the American economy can handle this little bit of a rate rise.

18:41doesn't expect sort of knee-jerk reactions from businesses everywhere and risking much higher unemployment and all of that. What are the risks here in the UK? If we start hearing more talk of a rate rise, and whether that's today or in the coming months, is there a risk it can hit the economy here? Well, I would say Governor Bailey will mention that some parts of the economy are cooling already, for example, the labour market. The Bank of England has a regional agents survey and they speak to local businesses and ask about hiring intent and cost pressures. And they've been coming down for several quarters now.

19:18I look at UK savings rate, it's very high, high single digits. So households are already showing a lot of restraint. Now, in that sense, that's why I don't think the Bank of England is going to be that aggressive in hiking rates. Maybe a precautionary one is needed. Let's see how Ofgem determines energy prices will be, especially for the winter months up ahead. But other than that, I'm actually not too pessimistic about the impact of rate rises itself, because the economy has self-adjusted. Of course, there are other things to look at, such as where do we go from here, future investment, is it going to deter future investment, and what the budget's going to entail.

20:03Quite a few moving parts, but I wouldn't be all doom and gloom yet. 85058, your thoughts, please, on that. If you're on LinkedIn, I have a feeling a fair few of you are, you can now follow us on our very own page. We'll be posting the top stories of the day there. You just have a search for Wake Up To Money on LinkedIn. Click that Companies tab and we will see you on there. You can text us on 85058. You can WhatsApp us on 0805 909 693. Of course, plenty of ways to get in touch with us. Come join us on the show. Come join us on social media, the business world, social media as well. And we'll continue the conversation.

20:45Keep it 24-7 there as well. Right. Tomorrow, a new album of unreleased recordings from David Bowie's early career, when he was still known as Davy Jones, will be available to stream. So they're called the Shel Tami Recordings after Bowie's producer at the time. The album includes unheard songs, demos, remastered versions of more familiar tunes as well. Wake Up To Win is Josh Korba Hoffman. He's been speaking with the archivist, music historian and six-time Grammy winner Alec Palau, the man who found those lost tapes. In my work as an archivist and a reissue producer, yada, yada, yada, somebody I made the acquaintance of and very glad to was Shel Tommy, a legendary American producer who spent most of the 60s and 70s in the UK and really was single handedly responsible for kind of upping the ante in British music with his productions by the Kinks and the Who, various other artists.

21:40And so I got to know Shell and one of our earliest conversations, sitting in his office at his home, talking about the kinks and a legendary early version of You Already Got Me that has been documented in a lot of places but never heard. So I just asked him casually, do you think you might have a copy? The interesting thing about Shell Tommy is that he was blind. He was actually going blind in the 60s. So a lot of this stuff he literally had not thought about because he couldn't see it for decades. At that moment, his wife, Jan, came into the room and said, well, there's some records in the closet here.

22:10So I opened up doors, started going through, and there was just an embarrassment of riches. Fantastic stuff by the Kinks, the Who, the Creation, and all the other groups at Shell. It was famous for working more in the 60s. But, you know, no, you already got me, unfortunately. Then I moved on to some more, and then that's when I came across a 12-inch lacquer acetate, which was sort of like the one-off records they made back then to audition music. and it had on the inside of it Davy Jones, very faintly written in pencil. So that got my spidey senses tingling. And lo and behold, it was five unreleased songs by David Bowie which had not been documented and were actually probably the most visceral roar you'll ever hear of the man.

22:57I mean, obviously, this is when he was Davy Jones, so it's pretty unformed. It's definitely a selfie. It's not a studio production or anything. But from that point, I started investigating the rest of Shell's stuff. I found some more things, some wonderful acoustic stuff that shows another side of where David was going. Sort of a little bit of show tune, a little bit of balladry, a little bit of kind of Beach Boise-type pop. And this package sort of fell together pretty quickly, but it's taken a long time to get it to actually come to the market. And it's a shame that Shell, unfortunately, is not around to see it happen as he passed away at the end of 2024.

23:34But this particular package is just a fascinating window into London in 1965 and the possibilities. So there's that, there's the story behind it all. There's the financial aspect as well, isn't there? Just reading here that it was only back in 2022 that David Bowie's publishing rights to his song catalogue were sold for a quarter of a billion dollars. And we often see the ways of trying to re-energise that back catalogue. Is this one of them? Well, I've got singer-songwriter Dana Gillespie with me, who actually met David Bowie when they were teenagers, forming a close relationship that lasted throughout the early years of their music careers.

24:17Dana, good morning. Thank you for your time. Good morning. To whom am I speaking? My name is Sean Farrington. Oh, hello, Sean. And we talk about all kinds of things on this show every day. We have financial aspects on the biggest stories affecting our lives too. You know, we drill down into different industries, look at the trends going on here. And music is often a popular one with our listeners, Dana, because people notice these things pop up on their phone these days and wonder what it's all about. When somebody will see now all of a sudden David Bowie's early career songs they'd never heard before popping up on their streaming platforms, what would you say to them as they sort of hear this stuff for the first time?

25:02Well, I think it's wonderful that people can get to hear the early David Jones music music because that was the era I met him in 1963 or 64, a bit hazy on my dates, I must say. And, you know, we were both aspiring songwriters then. And of course, everything happened in Denmark Street. It was the epicenter of the music business then. And in order to, we both wanted to be known as songwriters. And in order to be a songwriter, you have to go into the publishers and sing your songs. So therefore, you had to become a bit of a singer too. And there was a famous cafe called the Gioconda in Denmark Street, which was where the musicians would sit and wait till somebody would come in and shout for a bass player or a backing singer.

25:51And you'd hope that they'd pick you. But then you also got to actually meet the publishers because they too would come in for a cup of tea or an egg sandwich or something. And so this was the social centre. And I was sitting in the geoconda one day and I met David in the Marquee Club where he was very much experimental with his music. He always went from different genres. He was trying out blues and different styles. He hadn't found his style yet. I was a bit focused. And am I right in saying, sorry to interrupt you, Dana, but I'm right in saying Andy Warhol from Bowie's fourth album, Hunky Dory, was written for you.