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Welcome to the Merton Talks Money Market rap, where we talk about the biggest moves in markets this week and what's driving them.

I'm joined Stebick, senior reporter and author of the Money Distilled newsletter.

Mern's off and holiday for a few weeks, so I've invited show regular Marcus Ashworth, Bloomberg Opinion colmist in Markets Guru to join me in the studio.

Nice to have you back, Marcus said.

Now you haven't got stripefa Yeah, always a pleasure, never.

Right, So away, let's talk about what's been happening this week and at the weekend we have a deal in my old stomping ground of Girvin on the Scottish coast, the Scottish Riviera.

Yes, it's been very amazing watching people work out where is that.

There's a big rock in the sea called Elsa Craig and it's a very very beautiful segment of you come over, assuming that it's not raining, which it never isn't.

But anyway, so I said, Trump and the EU signed a deal, a.

Deal for Yeah.

Yeah, what's your take because I'm looking at it and the idea is that so they basically get the same deal as Japan fifteen percent across the board and everything the EU sells enter the US and basically nothing from the other side.

And this is one reason that all everyone in the EU is feeling a little bit aggrieved, a little bit humiliated.

But is that is that the reaction.

I'm going to take, for a change a controversial view on this.

I actually think that EU have done a lot better than they give them themselves any credit for, because it's all a lot of politics internally, and sure this isn't optimal.

However, if you look at the so called great deal that Starmer pulled off the UK at ten percent, an extra five percent isn't that much more considering the situation where the UK actually has essentially is running a trade surplus with the US.

They are not in the bad books, certainly on goods anyway.

Let's leave services out this out for a moment.

But the EU is the largest importer you know, into the US which exported in the US.

Part of me in the sense that they are the biggest problem as far as Trump would like us to see it.

Therefore, and also there's a lot of bad blood over verious different approaches to strom ashes with the Ukraine and all manner of stuff that clearly Trump has had problems with the Europe, so in some senses it's shown that he's wanting to do a deal.

And of course the promises on both energy and further investments into the US are pretty open ended in arbitry.

But it's a gesture of faith and it's a warm, fuzzy feeling.

Sure they might have liked to have got particularly wine and spirits nailed down, and they've still got ongoing problems in steel.

But the auto situation is bad, but not terrible.

And Mertz's German chancell was correct to say that this isn't you know.

Clearly growth is going to be hit very hard, which I cannot understand.

Therefore, while the European central banks seem to think they can hold rate to two percent, but that's to the side for the moment, but they will have to cut more because this will be bad for the European economy.

It's just potentially manageable and they will be able to negotiate through this and ongoing.

This is a process.

This is not but like you know, brexit breaksit is none events breaxit is a process, and it's likewise, these trade deals are going to be something which will be ongoing for the rest of our long, hopefully unhappy lives.

John, We'll be talking about these subjects because it's a new new thing and it's not going away.

Well, the one thing I wanted to talk about is the boy is the the poppers of the tardiffs, because one thing that I don't think people have talked about enough is, I mean, the US is going to make something like three hundred billion extra tax from that this year from the tallis as far there's someone of the numbers I've seen thrown around.

In theory the volume stay up, which they won't.

But yeah, yeah, absolutely, yeah, but you're still talking about that is something like five percent of the tax take currently and like it's the creivalent that Rachel reeves finding something like sexty billion down the back of the.

For our pensions.

I mean, you know, yeah, I'm just wondering.

This sort of feels as if the reconfiguration of how the US taxes you know, the rest of the world and.

People both agree on this essentially, And I think this is what's been unamazed at the commentariat refuses to go on this.

But you know, to my mind, what Trump is trying to do is change the US corporate tax cones, specifically from without.

He cannot change it through Congress.

He doesn't have the ability to get it through.

He's got his big beautiful bill through and that is a pretty meaningful change for a couple of ways.

And obviously it locks in the tax code where corporates are desperate to keep it and rather having it rise again as would have done under Kamala Arras and so he's fulfilled his side of the bargain.

But the reality what he's trying to do is be elected not say him forever, but Maga forever by essentially being able to offer a huge income tax cut up to one hundred and fifty thousand when it may be funded by corporates.

This is bringing back on shore US corporate revenue.

And he's having to do it by changing the rest of the world rather than changing the US domestic tax code and indeed, say they're sales tax into a say a vat tax.

So he is doing this and this is why.

You know, one thing we haven't gone in the European deal with the US is the pharmaceuticals which Ireland knows is coming down the pipe.

It's going to rightly probably change the dynamic in how so many particularly thus over seven hundred multinationals based in Ireland and they are having a fine time of it all paying toively minimal tax.

And I think that's what Trump is really after.

He's going to do it carefully and slowly.

It is Irish popular base.

At the same time he needs to make sure that this is all workable for the likes of Di Lily and Bristol Mars, et cetera, et cetera.

But you know, there is a reckoning coming there on how much tax they are keeping off shore and how much work going back on shore and indeed what the pharmaceutical production will be.

And it's that's the same for steel, and that's the same some sensus for autos.

See, I've got to see.

I think this is where Trump is winning.

So he's winning and he's really underrated because he's really impoison some massive stalth taxes here and being applouded for being you know, for being there.

The big mistake was in two thousand and one China was allowed in the World Trade Organization and exploited it.

Ever since and I believe the Germans and the French to large degree have enabled that, and it's been quite a useful technique for them to sell a lot of stuff into China.

One thing you must look at on all these things is the euro to the Yuan exchange rate.

But that tells you much more.

The euro is record high.

It's causing Europe a lot of pain on both sides.

It has to choose whether it's in bed with the States or it's going to, you know, somehow do a deal with China.

I don't think either on the option they've chosen the least worse option, which is doing a sort of placemaker deal with the US, because they are the dumping ground potentially for China.

If they can't Chinese can't sell goods into the States such a tariff, they're going to sell them into Europe.

So there is an awful lot going on within Europe as far as realization that they need to help themselves spend a lot more on defense and a lot more infrastructure.

That has yet to transpire.

A lot of promises we yet to see it.

But at least they walked through the ring of fire.

They can come out the other side, and they'll still be alive a little bit singed, but maybe they can do a better deal, slowly but surely.

But they are not out of the game by putting retalitory tariffs on the US.

They could they will have fallen into the trap where they've been shown to be the one that that example of Hopefully that or may not be China, but it's certainly not going to be the EU.

And they can they can move on and over a period of time, if they do deals and do the right thing, as far as Trump can see, you'll find these the tariffs will melt away.

I think, yeah, no, that makes a lot of sense.

Toning are we from kind of transatlantic a fields and back to or in little Aland this week we've heard the other thing that's been happening is Rechel Reeves and Andrew Bailey at the Bank of England have had a bit of a spy or allegedly allegedly allegedly well, this.

Is over not over monetary policy, which I've written about before, which is clearly that Bailey past others have fallen out with Reeves's economic strategy and do not believe that the tax risers and variety of other different things have gone through since April have helped the economy or a good good thing that is.

A reasonable point of view.

I could possibly come you think that, John, But yeah, I mean other people seem to do.

I needs to get half of it through.

The spending bits seems to come well, but the tax rises somehow seem to come through.

Anyways.

This is a separate matter where she's under a lot of pressure which she seems to be recognizing that she needs to help the city, the financial industry, and one of the key things is obviously Revolute, which is a proper challenger bank, not like the sort of normal ones which haven't really challenged anything.

But this is a fintech revolution of Revolute, which you know will be a big challenge to the major high street banks over time.

And it should and could list in the UK, And we missed out on Shean maybe for the best, but we would and should really have a homegrown monster like Revolute should be listing in London but is now allegedly looking at listing in the US.

Now.

A lot of this is performative, you know, Staff perhaps at the same time is looking potentially to buy a US bank to get the license the key thing and banking license in the States, because we in the UK will not give Revolute a banking license despite it being a vast in the number of customers anyway presence, and there's lots of further hoops.

Rightly so, and I think what Bailey has said, Look, don't just lean on the Treasury, lean on the Crudential Regulatory Authority, smash heads together and get us the way through a banking license for Revolute, because they knock on consequences are bigger, more profound for the existing infrastructure of banks.

But more importantly, knaf off Gobba.

This is our this is our patch.

You know.

We don't want the Treasury of the government leaning on telling what the Independent Bank of England financial regulator is allowed to do.

And it does it.

It's any sweet time.

There is a point there, a possibly a valid one, but you can see for once reason may well have a valid rationale that the regulators which he's been stamping on, you know, fairly brusquely with CMA and changing the head of that and a few other clearly measures on the Financial Conduct Authority.

I've got out the way of a bunch of stuff.

And there is a message coming through from the regulators.

We get it, we will get out of the way.

We are trying to be proactive and look at growing business rather than just say no to everything.

But maybe the banking hasn't quite got the message.

But certainly I think it's an interesting dynamic that the Bank of England governor in both is the two hatsy wears, is pushing back against this government, which you wouldn't, necessarily being cynical, have expected.

As fascinating to me that reeves the way that she's trying to kind of ignate growth or get growth going is to make the deggilt us feel uncomfortable join.

The dots up.

She should have the bank totally on board before this happens, not have to have a spat with him because he's feeling, you know, you're stretting on my turf.

So this is where the policy doesn't join up.

She's lost the room as far as economic policy is concerned, and she's at risk of losing whatever but potential sort of you know from her prown Sandwich offensive prior to the election of like yes, we're goin.

We get the message.

We will help industry, will help business.

We will certainly help the city and at least she understands it, but it's the enactment in power of policy which is not necessarily as joined up as one would hope.

However, that does not in any way perhaps excused what the Bank of England governor is doing on himself with regards to his wakeful approach to management policy, or indeed he's digging his heels on on what I think needs to be resolved.

I mean, revolute, to my mind, does deserve to get the banking license because I will just simply walk away.

I mean, yeah, I mean there's a fundamental problem with the length of team, the stuff takes.

I sympathized with Leeves's view.

The thing that baffles me slately is that it's almost like she gnaws what should be happening in an ideal world, but we are getting there as something.

Keep hiding bets and controlling things in trying to Tiewdal with s norb and Day all that don't and in fact maybe the best thing to be without to just scraps some of this sub.

Optimal well, I think, I mean in some senses, you know, she is I think got the right idea behind this is just the enactment, as I said, is perhaps still a little naive and perhaps a little amateur.

But you know, equally, I think she has to bang heads together and I'm going to give her the benefit of the doubt in this one.

And I think mister Bailey needs to be I understand why he's doing what he's doing.

But equally this cannot be the excuse always that we do have to get real on this stuff.

We've lost you in.

We do not need to be revolute.

We need to get our act together commercially, because if you look since two thousand and eight, the reason why the UK economy has got nothing to do with Brexit, you know, it's got to do with the fact that the financial industry has been severely heavily regulated, probably for good the initial reasons, but you look what's happened in the US banking sector and the US financial sector, which is leaps and bounds done better, and we have made ourselves unnecessarily hampered and hamstrung on every single step.

We need to be proactive and gain otherwise we will lose.

We are already losing, hopefully not termally, our financial sector, which is the largest earner of tax and twelve and a half percent of our economy as was and you know, really, you know this is this is we want to have a sufficient revenue taxes to be able to do all the spending plans they want.

The easiest and best way is to make sure that your financial sector, which is world leading stay.

Sat Yeah, that makes perfect sense, and then I guess.

It happened then, yeah, exactly.

As a boys for moving on from that into a kind of related topic that you or about this week, you can reckon that we're going to we're going to need this growth because the UK construmer is looking very fairly timid at the moment.

Well it's actually held on's held up well.

But you know, we've had a very nice summer, which is which affects dynamics and certain things.

That helps some hospitality in some retail, it hampers some retail in different ways.

And obviously if you have a warm autumn, it means people don't spend for winter clothing and you have a bad start into this sort of golden quarter of the last you know where Black Friday is named, you know, the end of Thanksgiving for a reason.

It's when you know, retailers in theory turn profitable, and certainly what they need is the consumer to keep on turning up.

Three fifths of our economy, sixty two percent is consumption, which matches sixty eight percent in the States.

We are big consumer led economies, the UK and US very similar in that way, and we need the consumer to stop some saving.

But we're seeing bank deposits rising, We're seeing the savings rate go up, which is a precursor of the paradox of thrift, which is in essence, people hold back.

They are on sure what's going to happen economic policy if we get a rinse repeat of last year.

And they came into power and July the fourth and basically said, right, there's black holes everywhere we are going.

The world is going to end.

We are going to we are going to have to really do bad things in October budget.

It just killed the momentum economy, killed confidence, which has not recovered since.

Obviously all these tax risers came in play in April.

We are under the threat of the same happening again, and that will be really comparing the family, and I think would be criminal in the sense of, you know, I think rees would would not recover.

You know, she's managed to hang on more by luck than judgment, but she cannot have a repeata what happened last year into into the run up into this year's autumn budget.

But the consumers showing signs and being fearful and are pulling back.

And there's definitely food inflation, and definitely the minimum wage ries and variety of other employer taxes and our national insurance contributions is really feeding through.

You know, employers are feeding price rises into the system which is starting to be hit on consumer activity and savior rates going up.

You know, that's where people pull back.

Money setting bankrup deposits is not working in the economy, which means growth will fall off and they need it.

They need it to get through you know, as you know, they can't cut spend needs.

They basically said in this government they will not be able to cut back on any of the welfare budget unless they have a wholly new approach, which you know they'll have to.

But the string isn't coming together, and I fear that we will have a very large pension tax rate and obviously a fiscal drag on and income tax bands extended in the October budget.

And you know, consumers can smell this, and that's why, you know, we end up getting the cause and effect where all of sudden things get worse before andything's actually really happened.

But by that stage it's too late.

Oh no, I wasn't going to ever do this.

Well, yeah, you've got to tell us upfront, what's you know?

Wealth tax, for instance, seems to be ruled out, but it hasn't been ruled out in a definitive sense.

But she can't rule it out because he's right about our backbenchers.

However, something is going to have to give, and I think that requires a much more proactive approach on being honest with what you going to do and why she's going to do it.

I think some pension tax reductions, as far as the tax relief is concerned, as far as the annual amount and on one or two other things, can make some sense if it's presented without in a coherent way.

I mean, I suppose it might because it's future pain and a funny kind of way make it away with it.

But I mean, I mean, this is a topic for a different podcast, But the problem with reforming pensions tax relief is always the under the boone it affects the public sector as well, and that's one reason why they've always.

It never affects the public sector pension.

That's the that's part of the problem.

Well, yeah, exactly, But what I mean is if you if you do it properly, then you end up having increased the contribution.

They can't they can't do wholesalform because they don't have the bandwidth to do it.

Then they don't reason enough money.

By the majority.

They don't have that.

They're going to tinker, they're going to cut them some things back.

Perhaps Jeremy Hault was a little bit too generous on a few things prior to the last selection.

We all know what he really should have done, just reverse his two employee national insurance sort of bungs.

But equally on some of the pension of stuff that he did.

Perhaps he was too generous.

Maybe some of that should have would get rowed back.

But you know, the reality here is is really going back to nineteen ninety seven when Gordon Brown did two things which you know, the Bank of England independence, everyone seems things a great idea, though the banking I don't think has lived up to its task, not in recent years particularly, but The other thing he did is he cut dividend tax credits and that is still killing our pension, you know, and it's killed a financial sector.

It's the main reason actuarily why you have a very low investment in UK equities.

You know.

These things are all course from a under the bonnet, as you said, change which you know no one will noticed.

And he got away with it.

But you know, but like selling gold, you know when he did, these things come back and continue to cause us pain even now.

Ah, it's a It's good to end on a high note.

Thanks always happening.

Yes, thanks for watching, Marcus.

I look forward to having you back on and actually probably next week because Marnon's still on our holidays if you're around for another session of holiday exactly see up the workers, That's what I say.

Hemy.

Thanks for listening to this week's Merton Talks Money deprief.

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This episode was produced by Summer, Sadie and Moses and am special thanks to Marcus Ashworth and questions and comments on the show and all our shows are always welcome.

The show email is Merion Money at bloomberd dot net.