Bank of england gave the clearest signal that they might be cutting Interest Rates below their own peer the first time in history. The economy struggling in the u. K. Amongst a surge in infections. And the dreaded word, four years later, brexit. Yes, it is still going. Has moved britain several steps further to a chaotic and bitter separation from the european union. Talking all about europe in the next halfhour. Where do we start when it comes to the u. K. . In particular, probability and negative rates. Joe they are still dealing with man. T there, negative rates, this is one of the more controversial strategies in Central Banks around the world may or may not employ. Around the world, you can see lots of Central Banks are already close to zero, or in europe, close to negative rates. Today we got the news that the blake bank of england was exploring that possibility. People seem to like this. Its not clear what they do but nonetheless, thats the direction it seems to ghosn. Romaine the market did seem to be a little rattled by how explicit the considerations have been made. You take a look with how the activity in the pound is, with risk reversals here. If you are longer pound, this is opportunity. If you are short, it will cost you. That is what this traders showing you. You. This chart is showing it costs a lot. A lot of folks are preparing for the idea that after four years of brexit, negotiations are might notg and there be liked at the end of the tunnel. Caroline everyones talking about the amount of bets against the pound, it is brimming over. Thats why we saw volatility in the pound earlier today. There seem to be algorithms underpinning some of this. Therline seemingly saying determination to get a brexit deal, suddenly the pound shoots higher. It is trading on these headlines. The headline risk is still front and center. Joe so much to break apart. Lets welcome stephanie flanders, Senior Executive editor for economics at bloomberg. Lets start with the bank of england. Why consider negative rates when there are theoretically other tools . We have the Federal Reserve for the furthering state contingent further guidance. Why negative rates is a possibility for the boe . Reporter i think its a game where the bank of england wants to always seem like it has a lot left in its arsenal. That is something the new governor has been keen to stress since he took over from mark carney. With the moveued today and had a debate with i were u. K. Economist about it today. They certainly dont want traders to rule out the possibility and they want to keep people guessing. The main thing certainly of our economists is still that the next move, if they have to do more to ease, which they probably have to do more to the end of the year, would be more quantitive easing rather than negative rates. They want to keep it open and they might be inching closer to it, which has been much more negative about it. Romaine and as far as the use of a policy use or trajectory like this, is this being put out there as something that could actually be put to use, or is this sort of the ultimate last resort . Weve got nothing else in the tank and this is what we are going to do. Reporter i think thats the situation they got themselves in, in the sense if they ever used it, people would have that feeling and it might not even have the desired effect. It has been fixed in peoples minds and from the rhetoric of something they dont rule out completely, but that they would get to the end of that at the end of a long line. It would have that doubleedged aspect. The Financial System will have trouble dealing with it. Banks would have trouble dealing with it for all the same reasons the u. S. Has not liked it. The things that make it difficult for the u. S. And the same in the u. K. I think it is quite unlikely they will go down that route unless they have to. Caroline not only is the bank of england perhaps keeping the and traders guessing, but it feels as if the government is keeping the population guessing. One second they are on one focus in terms of the fight against the virus and today we have Boris Johnson using the film from the 1970s animal house on whether or not there will be a crackdown on parties or not. Theres a lot of talk about, whether or not you should turn on your neighbors, and thats what a discussion was about with one minister, if you should tell if your neighbors are getting together with too many people, and boris not wanting to sound like he was a party pooper. But as for the bank of england, who has been at the front line of the brexit uncertainty for four years, it must feel like a very long road. But it is still having to prepare for this, it actually could be a series deal serious deal. Joe heres the thing, i thought there was a deal. We went through this last time. What was the thing people thought was agreed to . People whot was just have not been paying attention. What is the thing they might go back on . Reporter it is so difficult. The deal that was the thing that Boris Johnson was excited about and pulled the rabbit out of the hat, that was just to get britain out in an orderly way. That was so they could say, we are out of the european union, but the world didnt fall apart because you have this transition agreement. That is all the agreement was about and then it laid down principal for what to do with a trade deal. It solved the crucial problem of Northern Ireland. How do you not have a border between Northern Ireland and the rest of the island of ireland, when britain was potentially going to have different customer rules for the rest of the union . There are only two ways to do that. Either the u. K. Will stick with eu rules, which is what theresa may said, and everyone hated the deal. A boris decided we will have custom border, the Northern Ireland on the same rules as the rest of europe and the u. K. Go its separate way. You effectively have a new border. Now hes saying i did that deal but actually of course could it really have a border in the middle of what is still the United Kingdom and that is what we now have him suggesting that they would actually pass a law that would break this agreement with international treaty, which is incredibly devices divisive in the u. K. And a red flag for the europeans. But youre right, it is complicated and annoying and a lot of people dont want to think about it anymore. [laughter] romaine a big red flag for the europeans and we will talk about later. E stephanie, thank you for staying up with us. That is stephanie flanders, she leads the broad swath of economic coverage here at bloomberg. Always great to have her on. Coming up, we will talk about some of those red flags europe is raising and expanded conversation outside the u. K. This is bloomberg. Romaine today, we are focused on rising stress levels in europe. A lot of the stress being caused by your home country caroline, the u. K. Talked earlier about negative Interest Rates and the possibility the boe could go down this path. Inflation or the lack of it seems to be at the center of this discussion as well. Joe it is wellknown that for years, the fed has been well below its inflation goals. Obviously in europe, there even lower. Heres a good chart looking at comparable inflation measures in the u. S. And europe. Eurozone yearoveryear inflation at. 4 . That is almost zero. What does that say about the efficacy of ecb policy and whether they need to ease further Going Forward . Quite a lot of work to do. Caroline it is a lot of work to do. I have to say, i fled the u. K. For the sanity of the u. S. , your straight shooting politics you have over here. [laughter] joe nothing crazy ever happens over here. [laughter] caroline i have to say, you have completely overwhelmed me. It never fails to underperform. Joe very stable here. Lets get to Wealth Management strategist. We are looking at that inflation chart. Of course, we recently got the ecb just last week. How much of this is an indicator of a sort of failure of policy, or how much is it idiosyncratic noise that doesnt show that the broad direction is doing better . That is the first thing we need to figure out come the issue of low inflation his way back and what we have seen amplifies the trend we have seen before, the issues the ecb has faced and to some extent as well , wellan and the u. S. Below levels that should be consistent with what the fed has to. Has done. This is amplified by the crisis and also because of the noise and to try and figure out year. Y, what is reversed even then, when you smooths out and you look at the underlying consumer prices, it is going down. Romaine so its going down, but im curious because i feel like some of the language we heard from Christine Lagarde and even from draghi prior to her is there seems to be a little more language around the idea they could meet the inflation target and inflation was coming down the pipe, but im not quite sure why they dont seem to dial back some of that rhetoric. Absolutely right. It is all the more stunning that when you see whats happening , and wages arecy , one factor is fiscal policy and it was mentioned by the chief economy and the president of the ecb as the most important factor behind the upgrade of the inflation outlook by 2022. The strategy is that the ecb boostingan rely on inflation of wage growth. Hard not its very only for madame lagarde but the ecb economist who has finally said actually the euro does matter to us in terms of the currency where its currently trading. It does have some bearing on where we set policy. Meanwhile, the u. S. Is refleeting and its hard for europe to catch up. Europe is still being hindered to some extent by whats happening with rex it. Doesnt have much bearing on what the ecb does Going Forward . It does, and there little they can do about the current status and even less they can do about brexit. Again, the big difference including related to this is fiscal policy, the outlook that ofcal integration, recovery almost one trillion euros altogether of the recovery will finally have an impact and i do expect again joe a little breaking news out of the fed that says it is considering extending constraints on Bank Dividends and buybacks. Earlier in the crisis with the stress test, they did impose rules on the way the banks can give back money to shareholders in terms of making sure the banks had fortified Balance Sheets and so forth so it will announce its decision on a possible extension of those limits. , i want to guest pick up on something, the fiscal integration. That seems to be the difference between this crisis and the last crisis, the willingness to engage in more cyclical policy. Do you expect this vehicle will be a oneoff or will fiscal expansion to contract downturn counteract downturn, will that be a more permanent part of the euro area policy . Theres no going back from this commitment. It will bebe issues, perhaps incomplete, but there is no turning back. Actually that you will become one of the largest, if not the largest issuer in the market. This will in itself create a market. And policyerspective perspective, it has been a major taboo that was broken and there is no turning back. Romaine maybe you could bring this back to brexit and the prospect here a lot of investors have for either a hard brexit, delayed, or who knows, maybe they reversed course and decided to say with the eu. I am curious from the Economic Perspective here, is there any lasting damage that you would guard against or beyond march 4, should this not sort itself out in an orderly fashion . Tired of all tired, covering brexit and speaking of the consequences. Feels theresnk time wasted and the energy and feels the Growth Potential of the u. K. Has been damaged already. The hope is to sign a deal by and thisf the year piece mitigates that. The good thing is the endoftheyear deadline. Political tensions, it is good news because we need to get there for them to get back to the table and make concessions. To byuld expect a deal the end of the year. Joe i appreciate you joining us. Coming up, virus coming back. France reporting today the most new daily coronavirus cases since the end of the countrys lockdown for the second time in a week. We will get an update on the European Response to the pandemic, next. This is bloomberg. Caroline today, we are focused on the rising stress levels across europe. You cannot have a conversation about stress without talking about rising coronavirus cases. Today we learned france has reported daily cases at the highest level since the end of may. Ockdown in that is 10000 and one day. It feels as though the socalled second wave could very well be here as we start to see the weather turn, the flu season coming, and the warnings of what happens in terms of the first wave here in the u. S. Joe there seems to be this annoying thing about the science of the virus which is that as long as it exists, the more people who interact, the more people will get it. You see the seven day moving averages the yellow line. Picking back up in france. As high as it was in april, but i can think of a lot of people who assumed there was undercounting. Deaths remained significantly below then. Nevertheless, this is not the trend they want to see trying to revive the local economy. Romaine a lot of folks want to get back to work, get back out to restaurants and their informal social lives, so we will see how that affects things. Gol people be willing to back to the sacrifices of shuttering in . Joe joining us on this is our Bloomberg Opinion columnist. Is, a tradeoff between normal life and virus cases, and if you will resume normal life, virus cases go back up . Reporter thats pretty much exactly it. You can make the tradeoff less acute if you take appropriate theautions and prioritize things you have open. Its easier to have school in session if you have limited capacity for Indoor Dining or bars. Its easy to do everything if you have robust testing with quick turnaround times and effective contact tracing. But at a certain point when you have enough contacts in the sense of people being around each other, you are going to see an uptick in cases. To makepoint, you have a decision. What is the threshold you are willing to be ok with in terms of virus in the community . The more acute one is growth. This case will see in and many others, people will dismiss cases and saying we are not seeing the uptick in hospitalizations or tests. We saw the argument of its just young people, it is just testing, but eventually you get to the point that there is enough virus in the community where it spreads to more vulnerable populations so you have to keep a really close watch and not dismiss it just because it is not as bad as the spring. Caroline it is quite pertinent. We are looking at video shot in the u. K. And france. In france, 20 people out on the plenty people on the streets, but most wearing masks. Whereas in the u. K. , people wear a mask to go into the store and a shop, but they dont wear them on the streets in general. What is it in terms of policymaking . Is anywhere doing it right . Particularly europe . Reporter you can put it to a few countries that have sustained low case rates, but you could point to europe, until now generally, as relative successes. Is muchcond wave delayed compared to the u. S. At the end of the day, it is the gradual reduction in stringency and greater activity and also a change in mindset in terms of people begin to adjust their risk parameters, their activity levels. What they see is a new reality which is multiple months of quite low cases. Now you kind of see the resurgence and what will have to be to some extent, if you want to get things back to manageable levels, a shift toward some degree of more restrictive policy coupled with a shift in behavior in terms of masking and what people do. Otherwise, you can just do the same thing and expect different results. Caroline the technical definition of madness. Max nisen, thank you, our reporter. Bloomberg technology is up next. Romaine romaine have a great evening, everyone. This is bloomberg. Emily welcome to bloomberg technology. Im emily chang in san francisco. Technology shares leading the declines, apple, facebook and microsoft pulling the broader markets down on the back of fed chair jay powell saying he is not sure how quickly the economy will recover, intentions rising between the united states