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Welcome to the Merton Talks Money news round up, where we talk about the biggest move in markets this week and what's been driving them.

I'm joined Steppeck, Senior report of Bloomberd, author of the award winning Money to Still newsletter, and joining me in the studio today while Merrion is away again, is Marcus Ashwell.

Marcus is by now a fun favorite and a regular.

On the Groundhog Day.

Yes, yes, Punks of Tony.

Phil is with us today.

Expert on born Marcus and European equities and everything else and a regular contributor.

Great to tell you with us again, Marcus, what's a pleasure this week?

This week?

This week we've just had the Bank of England's running hold quite exciting.

Actually yeah, we're expecting Snoresville, but no, I think we're seeing that the Bank of England are expecting growth for this year to be below one percent.

That's down from one point twenty five from what they thought in November.

That's a cut of quarter of growth my word.

But more importantly I guess is that they from November to this February, they have changed their forward expectations of inflation by a full one percent or one hundred basis points lower than they thought it would be.

That's quite noticeable.

So half of that was from the budget.

The other half is just inflation is coming out of the system.

So why if we've got sub one percent growth and now therefore sub two percent inflation, do we have interest rates at three point seventy five.

We shouldn't, And I think even they're realizing that they need to cut so importantly.

One of the internal deputy governors, Sarah Breeden, moved across into the cut camps.

Are four people voted for cut, five stayed on hold, but two of those five are namely the Governor Andrew Bailey and outside member Catherine Mann.

Made very clear that they would expect to cut probably next time or something by April, so it's either March or April they will cut.

I think we'll vote for a cut, so the market's not fully priced in yet, but it's getting that way.

I think we've got two more unemployment data releases and one inflation before the March meeting, so it could be as soon as March, though, I think we should just put our hopes on they'll they will cut in April, and more important, they will cut again this year at least once, which they're starting the price and they realizing then no so called neutral raid is more like three and a quarter than three and a half.

Still got three people sort of in denial, but they're even their sort of argument's getting a little bit weaker.

They just think everything's sticky and nothing's ever going to change.

But there are evidence signs and the key factor is unemployment.

That's what they're really well, I.

Know the deve Bfrey governor specifically said very a weird unemployment is now about five percent.

I thought that was quite strange.

Yeah, it was important to what exactly got that spot on, I think, and Dan Ramsen is pointing out and he's one obviously hes already would look to cut, is that this is going to cut spending.

It's cutting the come into the economy, and really, not to put fun about what rach Ruths has done is really impacting unemployment.

It's people aren't hiring.

It's not like they're letting people redundant in Swedes thankfully yet, but they're clearly not hiring and that is starting to impact and it's starting to impact on spending, so for the back of anything to expect growth to be blow on person, I think that's quite important.

And clearly they're seeing inflation is just coming straight down and they're not as worried anywhere near as concerns the well that it would remain sticky.

So another two possibly, I think three great cuts this year.

I think it's quite possible if the numbers continue on this trend, and that trend in week definitely uh not doesn't look good for the UK economy, which is a's but I think they've under club growth to be quite frank.

And one thing it's quite interesting is that they did it emphasize that the state sector will continue to grow very nicely because it's been fueled by all our tax hikes.

Well those taxes are taken from us, John, they are feeling it into the state sector, Isn't that lovely?

But for private sector not so good.

But that is interesting because the point is that the bank has turned around, you know, they must think the private sector is doing actually really quite a lot wasp than we had thought.

And I mean I can see that maybe part of this is because obviously the figures were quite disrupted by the pre budget fear again.

And then after the budget there are a couple of signs that maybe everyone's a bit more relieved, but that's not at all clear.

And also the last employment figures, it was very striking that the public sector pay and obviously.

Seven point nine what's the private sector it was.

It wasn't two and a half.

Somewhere I think actually actually look at the running numbers two point nine or whatever, but a big difference.

Yeah, And I mean I know that those.

They're talking with effects Yeah, yeah.

Okay, well okay, but we've got to expect them follow does that mean that we.

Should see Well, we had this in Germany as well.

I mean, to be fair, the way it works is why inflation is so bad for the UK.

We have everything is ratched in an index and the government sets all these things.

A lot of these things are set in April, which is why we know inflation will fall by zero point five And alone was the budget effects because she's got out of her own way this year, which he made inflation much worse than there for the Bank of English job much harder previous year, but this last budget she's worked that one out at.

Least one thing.

That also means that she's compartitives are much easier as well well.

Of course, So yeah, the base effects again exactly.

So the point here is that we have, you know, quite noticeable changes that the government has made mistakes on, but one or two of them they are starting to get and their own way.

But the base online case of the economy is moneies are being pushed into the state sector and will continue to That will hold the norminal of GDP up, not the capital but the normal overall level of gross domestic products.

But the shift is happening beneath that is that the state sectors can take a far greater percentage.

You've got you know, these these public sector pay rises are a legacy from the inflation posting in Ukraine, and that's that's still working through the system.

But it's very very hard to get the state sector to except lower wages as we see this gone strike.

And some of them wanted to bring up on productivity because I've noticed people starting to talk about productivity picking up in the UK.

How much of that is specifically a function of this that can end to labor hoarding if you like.

So as you say, because the minimum we just shut up and you know, and employee National insurance is going on private sector employers I thinking that too expensive to hire people.

So basically there was an argument that they had perhaps hoarded people after COVID and is it the end of that.

That's definitely a part.

I mean I could just try it out and say AI, but some of that well, I think there is some of it, particularly graduate equipment.

But you know, yeah, I think that is precisely that is that is that particularly hostility retail constructions like that that where people were holding on to staff thinking they would have struggled to hire them.

Now it's the other way around.

So that's that's still got to work through.

But so productivity I think is a very misunderstood concept and I think that people put too much emphasis on being able to measure it.

We can't work out how many people are in this country.

How can we work out what product use.

We can't work out what labor stats are.

I mean, you know, really this.

Is a very good point.

Yeah, there's another reason to take productivity beyond my so pincher salt.

Okay, so shall we move from the Bank of England, But.

We can say quite nicely into into what's going on in the sas often which.

Which been sick.

We don't want to do that.

I want to do a jarring transition.

Well, the software as a surface sector had a rather unpleasant week, which may be because of AI and the productivity from leading less people to even to code.

Even coders are at risk now, let alone financial journalists.

So you know, the reality is what we've seen is a very big shift underneath the surface in stock markets, where you've had companies which have been doing very well the last few years selling software.

A London Stock Exchange group surprisingly hit hard, Sage Experience, Relex Walter's clerk.

There's lots of names which have been doing sort of riding the tech boom, and then they realized they are getting seriously differentiated now.

So AI spend is going in certain place and it will kill the existing software sector really very quickly.

We saw some very such savage stock market falls, but at the same time also credit spreads widening out in some of these even investment grade companies.

Because a lot of this is also because the private sector is getting hit, isn't it, Yeah, very.

Much as well.

Yeah, the private equity private credits sector particularly, Yeah, because a lot of these leverage loans and sort of hard to visualize, and they're there, it's very difficult to get a proper read on.

So then we can look at is investment gray bond corporate bond spreads and they have widened somewhere some seen fifteen and twenty basis points, which in it in itself is the end of the world, but it is a definite rerating of the sector.

And certain companies which are viewed as being there are old economy in the new economy are getting hit hard.

But what's also happening is if you actually look at the levels of the stock market, not just the foot see one hand, particularly the S and P, and this mirror is out across you know, its like Career Japan, which are very tech sensitive.

There's a massive rotation going on.

The factors of which you know, inequity has been rated on are shifting and now we're seeing value stocks, dividend higher dividend paying more old economy stocks.

I mean, some of the best performing stocks in the S and P were railroads and uh, you know, and even ob oil companies, which have kept the stock market up.

But a lot of money is shifting very quickly out of out of favor software sort of technology which isn't quite keeping up with the pace with the new world, and back into things which are much more viable than solid which is you know, I stop Picker's delight.

So sale, digital bay, physical, Oh thank you, thank you to be a journalist, I'll say, I'll say, but I mean, do you think so?

I mean, because one of the things that I know the liceners will be thinking, they'll see this year place I start like relics, which is going down by single day.

They love the look at that chart, because what retail investor doesn't love catching the fallen nave.

Why do you think, well, I mean, there's definite you know, if you actually anthropic a bit bemused themselves that the so called sort of cash list that was was this this legal services sort of new new tool which could cut out a lot of things.

They don't actually think I think it's that great themselves.

So this is these are the gays could Yeah, there's plenty of other you know, I'm not saying that in the sector.

There's now a lot more and will be substantially more products.

I mean, I think and topic of itself launched thirty in January alone of across lots of different sectors doing different things, and there's lots of competition in there, and they're probably more worried about their own jobs.

Ironically, you know, creating new new things with the AI itself will self create.

So in that sense, I think there's there's a lot of interesting factors to the way, but probably this is overdone for I mean, certain companies are just rehashing software and they are very vulnerable.

Other products are still very valid and and and will we have reasonable shelf lives.

However, if you look out two three years, then that that is the wires and that's why the sectory rate.

It also suddenly because everyone suddenly realized that this is starting to happen.

It's starting to happen immediately.

And the legal service is obviously the huge vast amounts we will pay to our lovely lawyers.

We wish we could pay them more.

But you know, why why are we paying or why are companies paying management consultants vast amounts of money?

Or they you know, they get a well trained graduate whacket into chat GBT and and why do you have to pay someone, you know, ex hundreds of thousand pounds an hour to do something which you could do yourself.

And well, and we are seeing that.

I mean, none of the manageming consultancies are lessed as far as I can remember, but you're not.

Realities and stories every day about the consultancies kind of haven't it caught back or.

Deploy accountants since lawyers consultants are all going to find things harder, aren't stay well.

I suppose it's interesting because we as journalists have been through this with the Internet destroyed the publishing industry.

As it was the interweb.

Yeah, yeah, that thing that was only going to have the same economic impact is the fax machine, Upton book publishing, Upton music.

All that is.

So I guess this is just a new fees for the definite set of weight call at work.

There's an awful lot of money behind it, you know, from salesforce onwards, which are growing the vast vast companies you know, providing things which you know, it's a rough cral world because the turnover products and the ability to self perpetuate and learn is going exponentially so that it's very hard to price.

And it all got priced in one day.

But as I said, some of this I think is permanent, but still some of these companies may be very careful and do your own research, you may find they've been a little bit, you know, chucked out with the Barold.

I think when that note you can go and do your own research.

You might even want to ask one of these new fangal day eyes.

I'm not having anything to do with them, not training the competition.

Exactly.

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

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He keep saying questions or comments to Merring Money at bloombard dot net.

You can also follow me and Marcus on x I'm at Joint Underscore Steppeck and Marcus is at Marcus Ashworth.

This episode is hosted by me Join Stepeck and it was produced by Moses and Am and Summer Sadi