Transcripts For BLOOMBERG The Pulse 20140514

Headquarters in london. I am mark barton. And i am caroline hyde. We begin with the bank of england. The pound is rallying as mark carney gets ready to give the latest quarterly Inflation Report. Jonathan ferro joins us in the studio. Clues, what clues could we get . 9 30 u. K. Time. Rowth set to come in unemployment above seven percent. You have all of this talk about slack and Spare Capacity in the economy. Look for wage growth. Two guys who used to work at the bank of england say that is a reflection of supply and demand in the labor market. ,hen wages start to pick up that is when you start to see that slack. We have real wage growth now. Is coming down. That is a big point. And only if you have a bonus. Excluding bonuses, and it is still just below inflation. It is starting to accelerate away. The pressure on the bank of england is going to build and their excuses to do nothing the pressure on the bank of england to do something about the Housing Market on the sbc next month. Mark carney may touch on it today. The boe referred to this as the brightest light on his dashboard. We are seeing house price growth. It is outside of london as well. 10 growth on the year. Has it got too far ahead of itself . On the screen, you are seeing it couple of tools. They do not want to use Interest Rates or bankrate. The limit high loantovalue mortgages or limit the loan to income ratios on mortgage forms mortgage terms. There is a big supply issue in u. K. Housing. We know that. The bank of england cannot build more homes. They have got to temper the market to some extent and many think they will. You will be all over it later, jonathan ferro. Bringing you the bank of englands quarterly Inflation Report live at 10 30 a. M. U. K. Time. Jonathan ferro will be there in the front row, hopefully questioning mark carney. After that, we have an exclusive interview with the Russian Foreign minister at noon london time. We will ask about his next move over the situation in ukraine. Prorussian rebels have killed seven government soldiers and wounded eight in an ambush in the east of the country. Angela merkel says all efforts must be undertaken to ensure that ukraines may election takes place. She was speaking at a News Conference in berlin. David, she also met with the imf. What was the focus . The focus of the talk with the imf was on the situation in the German Economy along with the oecd. Obviously, during a News Conference, the whole issue of , particularly a push for the organization for cooperation and security in ofope to host a roundtable talks pulling together prorussian separatist, but also the centrist government in ukraine. Angela merkel obviously pushing any diplomatic solution to this crisis. She was asked about whether she thought this could be a potential way to seek a solution. Is called to make a contribution to this, including russia. We believe that roundtables are a Good Opportunity to do this work. The more representatives at the table, the better. Only those are welcome who are ready and credible for not achieving their goals through violence. 25,he also said that may the president ial elections in ukraine, would be the absolute key. French officials adding that if there was potential interference coming from russia for those elections, that is what could trigger the sanctions, which would be discussed by the european summit of leaders at the beginning of june. Christine lagarde also speaking at the same News Conference, pointing out that this situation has already done damage to the russian economy and could easily do more. Clearly, the situation is already having consequences. We have revised downwards the growth forecast for russia. 2 this year and 1 next year. That is provided that the situation is resolved. If it was not, the degree of uncertainty that is generated by the current circumstances would clearly deteriorate the situation. That is provided the situation is resolved. Which is why it is important to see who does turn up at these talks that are going to be chaired by the osc. Is there a sense that the crisis is diffusing somewhat, especially as president couldnt putins tone seems to be softening . Well, there has been some indications that president putins tone is softening, but when it comes to these particular talks, there seems to be quite a lot of entrenchment from the regional leaders of the two states or two areas that held the referendums over the weekend. And also the separatists, the people who have been occupying those buildings, refusing to sit down and come to the table. Anyonennot actually get to sit down at the table. That is why it will be really key to talk to foreign minister later on lavrov today, which Ryan Chilcote will be doing, because these are the very questions we will be posing to him. We have this exclusive interview with the Russian Foreign minister, surgeon lab brought sergei lavrov. Staying on russia, it seems that the spat with the west is extending tune on earthly matters. Making plans to ban the u. S. From using the International Space station beyond 2020 in retaliation to american sanctions. U. S. Spacend of the shuttle project, the only way astronauts can reach the space station is by using russian spacecraft. What were you doing on november 2, 2000 . It is relevant to this story. I cannot be that specific. I was just finishing school. That was when it started to be manned and it has been continuously manned since then, the longestmanned space station in history. You are a font of knowledge. What were you doing . Sitting right here. Not literally right here, maybe over there, but i was in this building. Thank you. Lets turn to the top company storing a. Pharma is getting political. Astrazeneca will face questions this hour over pfizers planned takeover. What do lawmakers want to hear and what can they do to block the deal if they are not happy . Is goingwe expect that to be different today . Much more Scientific Meeting today when they go in front of the mps. What more can we expect from the chief executives . Sure there is too much he can say. Yesterday, when you saw the result, a commitment on 10 years, that they would keep 20 of the global r d workforce in the u. K. , he would not say how many jobs would be cut. There was not anything he was committing to in terms of numbers. They are the acquirers. Pascal can say anything more to add to that. How do investors view this right now . The bettero have position . Is it astrazeneca or pfizer . Be one thing to keep in mind, pfizer shares have gone down about 5 . You now have some analysts saying it might be too expensive for them because of the drop in shares. That could make the acquisition more expensive because they are looking at paying for it through both cash and stock. ,e are getting the sense that while it definitely seems that is good happen, the chances of it not happening are slowly going up. We were expecting a sweetened deal. We were expecting pfizer to come back to the table with a slightly better offer for astrazeneca. If there is so much political dislike, could pfizers desire weaken, or do we think that pfizer is really pushing for this . There is definitely a huge sweetener, lower taxes in london, which they want to try to capitalize on. The thing to notice, it is not just opposition in the u. K. In the u. S. , we are saying lawmakers we are hearing lawmakers say, give us commitment on jobs. We have talked about looking at increasing the offer yet again. That is a larger bill for them to pay. They were on the front foot in terms of Public Relations to begin with. We will see if they take it to the gate to the u. S. With a pr offensive as well. Thank you very much. Click here is what is on our radar today. Sony unexpectedly forecasting an annual loss. Hirai iscutive struggling to rebound the companies unprofitable tv business. At least 200 people have died in a turkish coal mine fire. Are still0 miners trapped underground. Smoke is hampering rescue efforts. The cause of the accident is still under investigation. A new report claims that some investors may have profited from getting early word on changes to the fed policy between 1997 and 2013. He reports from singaporebased Researchers Show trade records show an abnormally large price movements related to policy surprise. The moves occurred before and during socalled media lockups i had of the fed announcement. Ahead of the fed announcement. Coming up, we are watching the bank of england Inflation Report. Will and accelerating economic recovery mean rates rise this year . It is highest thinks on the potential list. We will be back. The rest of the world is looking at this because the bank the bank of england might be the First Central Bank to raise Interest Rates. Flanderss stephanie speaking to us ahead of the bank of englands orderly Inflation Report in the next hour. Governor carney will present his report. Interest rates have been at a record low to help stimulate growth. With a recovering economy, is an Interest Rate rise on the horizon . Ets ask helen clark thank you very much for joining us today. And theank of england market, are they aligned when it comes to Interest Rate expectations or not . We are getting closer to the time when they thought a rate hike was justified. Three months less uncertainty. We are coming to the same sort of point. Do they really care about house Price Inflation . Havenational measure, we seen doubledigit increases. That is overly distorted by london. They are not too worried about that he they will play that down, which may calm some fears that a rate hike is not anytime in it. The market tends to think it will be in the First Quarter of 2015. They are not as hawkish as we are expecting the market will take that. What about the labor market . We are going to get data on unemployment levels. We are starting to see them creeping higher. About the slack in the labor market . Unemployment is where it was the for the recession. Ofhave an emergency sense ontario policy. Hike ishike a rate not putting our foot on the brakes. We do not need it in this sort of environment. How soon before we witness some sort of nonconformity within the mpc. There has been conformity about Interest Rates. With the changing of the personnel, slight disagreements appearing over how much slack there is in the economy, how soon before we start to get members voting for a rate hike . I suspect we will get a dissent towards the end of this year, a rate hike early in the new year. We may start to see into that in minutes of this meeting. Carney will present a more united front at this press conference. In subsequent weeks, you might start to see that. Something that the brits like to talk about, house prices. You say that the debate will be if the bank of england feels it should control house prices. London hyperthe house price increasing. Mpcsu expecting that the will be the arbiters of house prices and trying to stamp out some of the euphoria . House Price Inflation is only a concern if it is being fueled by lending practices that threaten the financial system. We are starting to see more good down as we areme starting to see reviews. It is an issue for the ftc at thishan the mpc stage. How soon could they at . What are you anticipating . All of this is massively overblown. Are outside ofty london and it is a fraction of all transactions. Supply. Stimulate i do not think it is a huge deal. I think it has been a good thing. Theas really kick started economy. Politically, they want to get rid of it before next years election. Is the sterling a good thing, approaching 1. 70 against the dollar, over a year high against the euro. It pushes down inflation. Is pushing down inflation mean they have more scope to keep rates low for longer . What does the Pound Strength mean for the mpc . Dilemma. A real the ecb is certainly going to cut rates imminently. If the boe says we are going to hike rates soon, that is piling into the pound, which bears down on inflation. I think that there will be measures in that language in the hawkish direction, but i think they will stop short of being explicit. It will push the pound up further and it will deliver tighter conditions. In goodconomy itself is shape, isnt it . Looks like it will be the strongest g7 economy this year. Is that in line with your thinking . Pmi is close to 60, absolutely fine. , unemploymentowth falling like a stone. There do not seem to be any bumps in the road ahead. Are you worried about distillation disinflation on the consumer rather than the exporter . If the consumer is buying stuff, it is bad for exports. Our main trading partner in the eurozone, it is recovering but not really increasing its imports. I do not see exports picking up any time soon. Thanks a lot. Alan clarke, we will see you soon. We will bring you the Inflation Report live on Bloomberg Television at 10 30 u. K. Time. Lets get some company news now. Google is bracing for a barrage of requests. From european citizens to delete personal information. A court said the tech giant may be ordered to remove search results when Citizens Fund amental rights are harmed. May lose a 3. 5 billion order. Shows 51 of voters are ready to block the contract. A majority vote could also kill the current order, but any swiss purchase of warplanes over the next 10 years. Boeing is selling 50 of its carrier. Aft to a local the deal is worth at least 3. 8 billion. This ams as the Chinese Government continues to loosen control on the cost to travel. Still to come, we are live in moscow with Russian Foreign lavrov. Sergei we will grill him about the crisis in ukraine and russias next move in a standoff with the west. It is time for todays hotshots. Professional rollerbladers in austria have found a way to take their game across country. The extreme skaters were able to create a perfect rollerblade roller coaster. And there were 20 of wacky and wonderful designs this year in hong kong. Designers were challenged to create a homemade flying machine, but not many of the creations managed to make it further than the end of the six meter high flight. Want to make one of those. We will enter it together. Lets see how the european markets are trading now. Jonathan ferro has your asset check the i look forward to that entry. Standing all losses, if you look at equity markets. Putting off that decade high. Aroundstoxx 600, we are sixyear highs. We are coming off those levels right now. The only major positive territory is the dax. Lets move to the bond markets. The german 10year yield is at 1. 4 . We did a low that level for the first time in a year. The bond market is saying it expects the ecb to do something because the euro is talking to us as well. We go to the pound. It is that a 16month high against the euro. To watch. At in four minutes time, labor market data out of the u. K. Look at unemployment and wages as well. That is one to watch. At 10 30, mark carney speaks and delivers the Inflation Report. Watch, a bigt to theme today. Up next, how starbucks control your subconscious. How the coffee chain makes your decisions for you even before you walk into the door. Also coming up, the bloomberg exclusive. We are live with the Russian Foreign minister. That is at noon london time. We will ask about moscows next move in the ukraine. Just a reminder, you can follow me on twitter. I am still trying to persuade mark to join me. Good luck. Welcome back. Live from Bloomberg European headquarters. Lets get straight to those u. K. Unemployment numbers raking as we speak. Raking as we speak. A big miss on the average Weekly Earnings. Component wheny investors see whether we got a real increase in wages. Up 1. 7 . The market had been looking for 2. 1 . Average Weekly Earnings up 1. 3 are sent. 1. 3 . We still have some way to go. Maybe that will temper the euphoria. A bit of a move on the pound, dropping against the dollar. Looks the Unemployment Rate falling to a five year low. I will intensify the debate whether the boe should raise rates. The jobless rate has been the focus of the bank of england. Back in line with estimates. The wage growth figure is the key one. For the First Time Since 2010. We will see, all lies ahead for the bank of england. All eyes ahead for the bank of england. The cofounder of skype spoke at the idea summit. Him how the tech scene has changed since skype was started. We started skype in 2002 and i remember moving from london to stockholm and there was no tech ecosystem. It is difficult today. Today, whether it is in london goodockholm, you have a and emerging ecosystem. You have a lot of investors and entrepreneurs who have been successful. You have people who want to join Technology Companies. Students think, i want to work for Technology Companies instead of investment banks. Ironic. Is it easier . If the access to capital easier . Company, to start a that you need less capital. More Technology Available and you can use the cloud. There are more companies being started, so more competition today than before. The thing that is very difficult is to scale a business. It is all about management and experience and how you expand it. You have the experience and the skype experience. You are the man who got it right in regards to china. What is it that you do so well when the investment that you make in terms of scalability . We brought a lot of resources and people who worked with me at skype. You mentioned china, we have people in china, japan, korea, latin america. Expand andpanies to helping them with talent. That is one of the hardest things to have access to and to understand. Those are the things were trying to help. Goldman sachs Asset Management ideas summit and i work for bloomberg tv, what are forcext big disruptive for banking . One of the things interesting is that it has not been disruptions for retail banking. We are still using the same retail banks. There has not been that much changes. You would like to see more transparency and more frictionless transactions. Payment is part of it and consumer credit. Payments are something you have already you are already exposed to. We invested in a Swedish Company that is a very successful payment company. In scandinavia and in germany, they are very successful. Is twitter going to help us reinvent television . Is it my homepage . Email, it islike part of the ether, something that is always there. It is the nerve system of the internet. It is important it is a great other t news and is twitter one of the big investors . The scalability of twitter is also an issue. I think it is fantastic as a service. It has potential to be there for a very long time. Big, big, the next big company . I am not so sure. It is a challenge for all of these companies which become successful. You create a large user base. If you do not try to innovate a Business Model on top of that, that is a big challenge. That was the founder and chief executive of a taco and o andnder of atomic cofounder of skype. Today, Mark Zuckerberg turned 30. It has been a pretty good day for the tech billionaire. Billion for every year of his life yet . If this had happened about a month ago, yes. He has about 27 billion. He is 30. I think he is doing ok. How does he stack up against other useful billionaires . Outhful billionaires only one billionaire who was under 30. It is the facebook cofounder. He was born eight days after Mark Zuckerberg. That surprises me. I would think there would be more people who inherited under the age of 30. There may be children in , but who are billionaires we have not found them yet. Less than 10 under the age of 40. But keep in mind the google cofounders, they are over 40. There is half a dozen billionaires that we have frank already in their 30s. We have ranked already in their 30s. How is wealthy how is wealth distributed . The sweet spot is your 70s. About 26 are in their 70s. Only one percent under the age of 40. It favors the wealthy. Whetherus a sense of this next you say you are on the hunt for some new billionaires to add to the list. Are you expecting to uncover more useful youthful billionaires . Zuckerberg, only 27 million billion to his name. It was a lot easier last year in the markets were searching. You have to work a little harder to find them. Most of the fortunes in the world are closely held. The biggest ones are publicly traded. They are a lot harder to find. I do not think we will be finding many useful youthful billionaires. We will see our first trillion next 25 years. He who else is in the 30 Billionaire Club . She inherited the in and out hamburger fortune. Her grandfather started the company. One of the most interesting ones is the Richest Woman in china. She inherited Country Gardens from her father. He started it when she was five years old. She was attending Company Meetings and she was a teenager. Of kirkhe children christiansen met the founder of lego. Now she along with her father and two siblings run the company. Are billionaire hunter. Hunter. Illionaire thank you very much. Starbucks stores may not look too fancy, that they are the result of countless hours of testing and tweaking by highly paid designers. You have not even walked in yet. Already, starbucks is working on you. Start with the door handle. The designers call this a handshake between the customer and the door. It provides a little bit of advertising and gets you thinking about the coffee you are about to buy. Starbucks is all about flow and getting people in and out of the stores in the most efficient way possible. In this store, they get people to go to the back. They use lighting and visual cues. Notice that the merchandise and the food is back there and that it is lit more brightly. When you walk in, you automatically move towards the back. Starbucks knows that two things are happening to you. You are seeing the seating options and you can decide where to sit down. You are also getting positive reinforcement. You are seeing nice people enjoying cups of starbucks coffee. You see the strip of countertop watermark it does not look like much. It is part of the plan to maintain the connection to the people who work here. If this was not here, the first thing you would encounter is tall coffee machines. You are drawn with the counter and, because everything is below eye level, you can remain in contact with the people making your coffee. Here is a question, i just gave starbucks my money. Why am i seeing more advertisement for coffee . Starbucks is based on repeat customers. They want me to think about the next time i come back. Did that go through your mind when you went to buy your coffee this morning . I think the light beckons at the end. It is like a lost toward the light a wasp toward the light. Next, i td pass world cup itvs world cup hopes. Stay with us. Let me tell you one thing. People talk, sometimes they say that somebody has i do not know how many billion. The bank will call him and he does not have money. Yes, i am rich enough to live a very good life. Myself and my family. Speaking to charlie rose. He was foreign minister of qatar. You can catch the full interview tonight on Bloomberg Television. Lets get to some company news. Itv is one of the biggest losers today in europe. Results came out for its First Quarter. The Company Behind Downton Abbey says the share was lower than expected in the First Quarter, but it has confidence it has a strong schedule lined up for the second cap. The world cup will help boost sales. Toby, it seems there was little bit of euphoria going into the numbers. Stellar outlooks for the second quarter. Everybody will be excited about advertising revenue on the back of the world cup. It is a much stronger quarter than the previous one. When it comes to advertising, put a did how important the world cup is for the likes of itv. It can charge up to 300,000 30nds for 32nd slot second slot. Is the world cup a real Revenue Generating period for the company . Asked yes, yes, the rates are very high and you get the premiums. The actual agreements are determined in the year on year negotiations. It was all part of the total deals. It is selling everything individually, because it is not. The bigger picture, this is a company that is trying to diversify itself. It is very dependent on advertising revenue and things like the world cup, but it is trying to get into production. Trying to sell some programming. That is why it has been making some big acquisitions. These good deals, good acquisitions. When i look at them very carefully from what we have seen in the previous ones, it is not just the production business. Agesirst channel launch in from itv in terms of a free to air channel. That will be carrying a lot of the u. S. Stuff. What about the changing way the younger portion of the population is watching video and content on their mobile and tablet . How much a challenge without proof for broadcasters like itv . It will prove a challenge for all of them. Is it more of a challenge for channel 4 . They have seen the biggest falls in audience at the moment. Is it going to for somebody like itv, which has less of its audience amongst the younger people, it still has the court older markets, but things like itv b is part of the strategy to strengthen, to get more of that younger audience. They are seeing good growth in online. They are trying to shift us onto tablet. That is occurring anyway and you could say theyre behind the rest of the market. It is a very in port and area important area and itv is going to meet beat the market average in terms of the market share of revenues from advertising. Will be approached while souter . Would it be approached i a souter . Or . By a suit you always can have that talks for companies doing well, but we prefer to look at the business and it is becoming a significant presence. It is the fifth against in the u. S. Some clouty gaining and you see it starting we caught up with the chief executive. We asked about europe hot dependence on your apostle dependence europes dependence on russian oil. I do not think that we can say there is a future, which is better, brighter because of shortterm tensions like this. Think that we can say there is aindeed, there is g awareness that security of supply on the mediumand longterm is going to be increasingly an issue in europe. Renewable Energy Provides hedging towards supply risk. That is for sure improving the outlook for companies because clearly, in an uncertain world, security of supply of energy it is a plus. Interest andewed increased attention on her noble energy sector. Renewable energy sector. The ukrainian crisis is just another crisis we have experienced in the past that leads to uncertainty. That was the chief executive. Word is up next. For our viewers, a second hour is coming up. We have the quarterly Inflation Report. We are speaking to a former member of the bank of england. Unemployment lower. Average Weekly Earnings not up as much as we thought. We will have that bloomberg exclusive with the Russian Foreign minister, noon london time. Unemployment the bank of england chief tries to manage expectations. We will bring you his Inflation Report this hour. Second time lucky, will lawmakers go easy on pfizer and astros and it gives chief executives on day two of the takeover hearing. The bank of england, the pound rallying as mark carney gets ready to give the latest report. What clues will he give as to the future direction . Forget unemployment, forget look at wage group wage growth. That is way below expectations. If you exclude earnings, it is still below inflation. We have still not turned that corner. It is slack. This i refer to the labor market as the highest market. You can offer pretty poor wages. Au want to see this go to sellers market. That means wages go up. That is when slack starts to be no way. Eaten away. We still have people in parttime jobs, zero hour contracts. You talk about slack in the labor market. There also obsessed with Housing Market. What do you anticipate there . Pressure is building. Does not setaid he policy for property prices inside the circle line. It is not just about london anymore. It is about the rest of the u. K. As well. Growth for punchy house prices outside of london. Are they going to address it . They do not want to address it with the bankrate. Bank rate. They want to use macro prudential tools. They have a couple of options. Limit highvalue mortgages. There is your toolbox. These things are not new. They have done it with some success. We know there is a supply problem within the u. K. They could temper credit demand. Rates will stay low for a long time. Any rate rise will be gradual. If that is something they can promise. Maybe your next guest has something on that. He was a member of it. I think you would already dissent. [laughter] the bank ofring you england quarterly Inflation Report and live and in full in 30 minutes time. Shortly after that, we have an exclusive for you with the Russian Foreign minister. Sergei lavrov. Movell ask about his next over the standoff in ukraine. Prorussian rebels have killed seven government soldiers and wounded a in an ambush. Elgo a Merkel Angela merk was speaking at a News Conference in berlin. David tweed is based in berlin, too. She also met with the imf. What was the focus . The focus was to be on germanys economy. In the end, it was ukraine, ukraine, ukraine. Made it very clear that she wants to see a diplomatic solution. The difficulty is that you need to have some people sit down and talk to you. They have had no success getting the pro russian separatists to talk. That is exactly what she said last night. Everybody is called to make a contribution to this. Areelieve that roundtables a Good Opportunity to do this work. More representatives at the table the better. It is clear that only those are welcome who already and credible to achieve their goals not through violence. Clearly the situation is already having consequences. We have revised downward the 0. 2 thisor russia to year and 1 next year. And that is provided that the situation is resolved. If it was not, the degree of uncertainty that is generated by the current circumstances would clearly deteriorate the situation. There was Christine Lagarde speaking at the same News Conference last night, talking about the consequences of potential sanctions on russia. The president ial election is key , is what merkel said. If there is interference, european leaders said they will atcuss economic sanctions their meeting in brussels at the beginning of next month. David tweed, thank you. Later, we will have an exclusive interview with the Russian Foreign minister. Time. S at noon london have we mentioned it . [laughter] lets stay with russia. Lets stick with it. The nation is making plans to ban the u. S. From using the International Space station. It is all in retaliation to american sanctions. Since the end of the u. S. Space shuttle project, the only way astronauts can reach the space station is by using russian spacecraft. Was when the, 2000 space station started to be manned. It is the longest continuous human presence in space over 13 years. Been atullock has also the International Space station. If you have seen gravity you know what happens. It is not pretty. I wont ruin it. There was a lot of drama surrounding the International Space station. But it is all fiction, so dont worry. Lets turn our focus to the company news today. The farmers getting political again. He pharma is te getting political again. What can lawmakers do about astrazeneca and pfizer . Can we take anymore excitement . Will there be any more name calling . That is the big question. I think the interesting thing to note is that there were no commitments given yesterday. We will probably see more of that today. Willfizer ceo said they give them 20 for 10 years instead of five. He said they will not cut jobs in london. We will probably see a lot more of that today. He is sticking by original pledges and he is not going further. How can he . To be fair. You want to hold some of it back, dont you . He seems to be caught between a rock and a hard place. Thattors are losing faith this deal might go through, arent they . There definitely seems to be a sense of that. 5 saw pfizer shares down since the news of the acquisition broke. Going tos the deal is be slightly more expensive for them if they are paying in cash and stock. Sweeteningoking at the offer after these hearings get over. Payy they will play slightly more than 55 pershare. Per share. It looks as if yesterday, after day one of the grilling, that the ceo of astrazeneca has the upper hand here. Just for the moment. I think the thing to remember is ,hat if pfizer backs out astrazenecas increase in the shares is immediately going to disappear. Astrazeneca was saying that their sales for 2017 are going to be similar to what they were last year. They were trying to push out experimental drugs in the pipeline and push them out faster to gain advantage. They seem to be too optimistic after their annual general meeting. Madeof the pledges they for annual Revenue Growth were not really attainable. They are placing a lot on drugs that are in the pipeline. There are so many ifs and buts there. Thank you very much indeed. Elsere is what is else is on our radar. Sonys ceo is struggling to revamp the tv business. At least 200 people have died. N a turkish mine collapse lingering smoke is hampering rescue efforts. The cause is still under investigation. The former foreign minister weighed in on the price of oil in qatar. To trye is a challenge tar be independent from oil and gas. How long would that take you . That is the challenge. This all frankly depends on what the oil price is for the next 10 years. Qataralso manages the investment authority. You can catch the full interview tonight on Bloomberg Television. Eyes are on, all the bank of england. Mark carney prepares to deliver the Inflation Report. Joins us after the break. \ the rest of the world is looking at this because the bank of england may be the First Central Bank to raise Interest Rate. Lets have a quick look at sterling. See how it is faring against the dollar. Slightly lower after today after the unemployment data. Interesting view on wages, as well, showed by the report. Sterling is a little bit lower to the dollar. Lets get on to the next guest. We are very pleased to say we are joined by andrew sentance, the former bank of england policymaker. Thank you very much for joining us. Where to look, where to look . Rateave 6. 8 unemployment 6. 8 Unemployment Rate. The average Weekly Earnings are increasing above inflation. 1. 7 . Without we would see after just up to 2. 1 . We thought we would see earnings just up to 2. 1 . The rate is quite significant. Nearly half a million over the course of the year, if it continues at that rate. The bank of england said they will play club pay close attention. If they take that seriously and they should be thinking about raising Interest Rates. The expectations for a rate hike for the First Quarter of next year is that in line with your expectations . Should the jumped the gun . Or should they jumped the gun . I think it is likely that they will start the process later this year. If they are going to respond properly to the economy. The danger of leaving it into is that the gradual rise in Interest Rates becomes impossible to achieve. Then we get this shock that the bank seems to be trying to avoid. What do you expect from mark carney today in the Inflation Report . Will he try to drop a hint about rate rises this side of 2014 rather than 2015 . Or do you think he is trying to temper over exuberance . I think he will probably signal that the bank is not going against that market expectation. Im not sure he is going to do it to try to bring it forward. In the past, the bank might have been willing to signal that they thought the markets were expecting rates to rise too quickly. When Forward Guidance was announced in august, they were talking about 2016. Is rd changed significantly. Has already changed significantly. Bank it best that the leaves the Housing Market to the Financial Policy Committee for now . What would be a better tool of dealing with the Housing Market . Were looking at a bubbly Housing Market in isolation from the rest of the economy if that was the case, you might want to look to the policy committee to tighten lending rules. If you look at the prodding picture, the Housing Market is reflecting what is going on in terms of growth and capacity. I think pushing up Interest Rates now is the right response to the Housing Market and the right response to the economy, as well. 3. 1 owth is expected to be. Expecting do you like the way we are seeing growth . It seems to be very consumer driven right now. Growth is always consumer driven, to a large extent. Consumer spending is about two thirds of the total demand in the economy. If you look at the broader picture over the recovery so do, investment and exports seem to be picking up. But they are much more volatile. One quarter they are down and the next quarter that pick up sharply. The recovery seems reasonably balanced over the big picture. I dont think it is correct to say that it is a badly balanced recovery. How does the bank make sure that the recovery continues on a steady, even keel . If investors believe that rates are heading higher sooner rather than later, sterling will likely continue rising. That of course dance inflationary expectations. Inflationary expectations. Does that mean the bank could hold off on raising Interest Rates . If you want a gradual rise in Interest Rates, you cannot wait until inflation is a clear and present danger and you are having to raise them to respond. That is the situation when Interest Rates need to go up sharply. There are quite a few parallels between where we are now and 1986 at the beginning of the boom. The Exchange Rate was used as a reason for not pushing Exchange Rates. Then they had to push them up quite sharply in 19881989. The inflation rate needs to be looked at in the context of the entire picture of the economy. We have had quite an exchange for weak Exchange Rate quite a while. Were able to control the matter to a certain extent, when would you like to see Interest Rates start to rise and by how much . Would it be a quarter increase . What a come as soon as the next quarter . Would it come as soon as the next quarter . I just wonder if the bank keeps him leaving it, they may not have to make a 0. 5 rise or two quick 0. 25 quarter rises . I dont think at this stage it will knock the recovery on its head. If we wait until after the general election, i think you could well find that there will be a much quicker rise in Interest Rates. The big risks are often to do with the International Economy. I think in the International Economy we have reasonable rates of growth and markets in europe seem to be picking up. If there are problems yes, there are problems in some emerging markets. But the bank will take the view that the World Economy looks pretty stable. I do not think they should over exaggerate the risk on the World Economy. , the formerntance bank of england policymaker and senior Economic Advisor to Price Waterhouse cooper. Mark carney presents the Inflation Report in just a few minutes. We will bring it to you live. Welcome back to the pulse. Time for the new energy. Africa is the next big place for renewables. Take a listen. Africa is a very exciting place. It is a very different africa than we all think about. It is a very fastgrowing and quick growing demand africa. It is in africa full of Renewable Energy sources. A lot of good wind, good water,ood sunshine, Available Space and a big hunger for energy. The single issue facing Economic Growth in africa is available energy. They all have Energy Agenda in the first, or second, or third priority. We see Renewable Energy increasingly being looked upon as a Fast Response to a growing rate demand. Solar plant in one year. Of power,short Renewable Energy is a good and quick response. That was the ceo of enel green power. Coming up, a balancing act for the bank of england. The Inflation Report comes up any minute. We will bring it to you live. Plus, the Russian Foreign minister speaks to us at 7 00 a. M. New york time. Just a reminder, you can follow me on twitter. One day, i will lower mark onto twitter. Oneday over the rainbow. Will come back. This is the pulse. Mark carney presenting the bank of england Inflation Report. Lots of headlines across thing crossing bloomberg. The margin of u. K. Spare capacity is not enough. Lets go over there now. The quarterly Inflation Report. Next to me is the governor of the bank of england, mark carney. Thank you very much and good morning. The overall outlook for gdp growth and inflation in this Inflation Report is little changed from that in february. That means that the u. K. Economy continues to perform strongly. Having increased by more than 3 over the past year, output is close to regaining its precrisis level. 700,000 more people are in work. Inflation is close to the target. The economy has started to head back to normal. The forecast sees the prospect of an economy moving from a recovery sustained by Household Spending to an expansion sustained by business six investment. From falling to rising real wages. And improved export competitiveness. The sustained r expansion that is now in prospectests expansion that is now in progress rests on these. Are has has probably been a narrowing of Spare Capacity over the last couple of months. Companies appear to be operating at around normal levels of capacity. Despite recent progress, significant slack remains in the labor market. In the 1. 4is evident Million People who are working parttime because they are unable to find fulltime work. As well as in an Unemployment Rate of 6. 8 that remained significantly above our estimate of its current equilibrium level. Our slack estimate is cautious. It does not reflect the longterm unemployed recently finding work at a faster rate than usual. Nor does it allow for any of the unprecedented rises in selfemployment. Overall, while there are differing views on the committee, our best judgment as spare in 1. 5 of gdp. Spare capacity is likely to be used up more slowly than in the recent past. Output growth moderates in our forecast. Productivity growth is expected to resume. To continue to assume that productivity growth will only recover to its precrisis average rate by the end of the forecast period. Given the huge shortfall, this is cautious and prudent. Assumption, the margin of Spare Capacity is absorbed only by the end of the forecast period on our forecast based on market rates. Taken to absorb Spare Capacity is a reflection of the continued headwinds faced by the economy. The Financial Sector continues to heal. Public and private Balance Sheets continue to be repaired. Export growth faces a 10 appreciation of sterling over the past year. While growth in the Global Economy remains muted. While the risk to the euro area are now two sided around a modest growth rate, there are Downside Risks from the consequences of rapid growth, of shadow banking from china. Toe broadly, we are alert the reassessment of risks in Financial Markets, prompted by geopolitical markets and uncertainties about the normalization of Monetary Policy. Despite a more complex global environment, implied volatilitys and many markets are well below their longterm averages. Heading back to normal will likely be accompanied by more normal, that is, higher levels of volatility. Consistentpicture is with muted external inflationary pressures. Coupled with the sterling appreciation, these will moderate cpi in the nearterm. Fallen sharply since autumn and is one percentage point lower than we had expected a year ago. We have interpreted this news largely as a result of one factors rather than inflationary pressures. The outlook for inflation in the mediumterm remains benign. In the past three months, pay growth has edged up as expected and is likely to continue to do so as productivity growth improves and labor market slack diminishes. Reaching about 2. 5 by the end of the year. Unit labor cost growth of only one percent is expected over 2014 and remains consistent with meeting the inflation target over the medium term. As time has moved on and the recovery has been sustained, the economy has edged closer to the point that which the bankrate will need gradually to rise. The exact timing of this will inevitably be subject of considerable speculation and interest. The ultimate answer will do spend depend on the evolution of the economy, particularly the prospect slack, the for its absorption, and the broader inflationary outlook. Will continue to monitor a broad range of factors including unemployment, participation in the labor market, average hours worked, the extent of involuntary parttime working, surveys of Spare Capacity and companies him a labor productivity, wages, and unit labor cost. Discussions of timing should be kept in perspective. What matters above all is that thatpc, having confirmed Monetary Policy will reflect the new guidance set out in the inflationary report shares a common framework over the medium term. Thatain elements are Monetary Policy will be set to meet the inflation target over the forecast a rise in, what using up wasteful Spare Capacity horizon, while using up wasteful Spare Capacity. This will depend on economic developments. The bankrate does begin to rise and increases are expected to be gradual and limited. The bankrate may stay at historically low levels for some time. Beginhe time does come to to remove stimulus, we will defer asset sales at least until bankrate has reached a level from which it could be cut materially. The flexibility to maintain extraordinary stimulus for as long as is necessary is supported by close cord nation with the fpc. The fpc remains vigilant to any resulting risk to Financial Stability, including those associated with housing. It retains considerable flexibility over a graduated range of tools to manage those risks. Its may meeting, the npc judged that there was scope to into slackr inroads before the first bankrate was necessary. The guidance is given household confidence that we will not take risks with Financial Stability, price stability, or the incipient economic expansion. Promote business sustained expansion demands. Amidst the excitement that output is close to regaining its precrisis level, we should not forget that the economy has only just begun to head back toward normal. Noting thath by part of heading back toward normal in these press conferences is to employ sporting analogies. Let me try to put the situation like this. Likeing the recovery is making a through the qualifying rounds of the world cup. That is a major achievement, but obviously it is not the ultimate goal. The real tournament and football is about to begin. For us, it is just beginning in the economy. Strong, sustainable, and balanced growth across the bank. Policy to help win that prize and promote the good of the people of the united kingdom. With that, i would be happy to take questions. I would be very grateful if you could identify yourselves before asking a question. Please do wait for the microphone. There are lots of you here. In the interest of having as many people as possible ask a question, can we keep it to just one question for time . Richard. Markets have been expecting Interest Rates to rise in the first three months of next year. Assessment of the Economy Today seems to suggest that they must be wrong. Can borrowers take comfort that they can relax . Want to gethink we into validating any particular market moves or any particular market curves. What are assessment has been. The main guidance we are giving is about two things. The medium term pass for Interest Rates. ,s the expansion progresses there is likely going to need to be gradual and limited increases in Interest Rates. They are likely to remain low relative to historic levels for some time. That is the first point. The second is that the exact timing of the first adjustment productrates will be a of the evolution of the economy. Today is not the day. ,here is additional slack wasteful Spare Capacity, they can be used up. Report autlined in the series of things that need to happen to sustainably use up that slack. Moment get to a welcome where the economy has added far enough back toward normal that there will be the first adjustment and bankrate. In bankrate. That is a decision for another day. In todays report, you say that the margin of Spare Capacity has been broadly closed. In february, the npc said it will not be absorbed by the forecast period. Can you elaborate on your views of the timeline about Spare Capacity . Does that mean policy will be tightened earlier than expected . Have a pretty marginal change in the level of gdp in the forecast. Same forecast for this year. Slightly stronger next year. We have, as i emphasized in the remarks, we have retained quite a cautious assumption around productivity growth. The combination of those two effectively mean that what was a marginal amount of Spare Capacity at the end of the forecast is now effectively a full of sorption of that Spare Capacity a full absorption of that Spare Capacity. That is our job, to make those adjustments. The report points out that they for mortgages that new lending for mortgages is at a high ratio with respect to incomes. Points to there being an incipient level. You think there is an incipient level in the Housing Market and what would be the right tools to do with it . Monetary policy would not be the right tool. Frameworkwork our i will limit the breadth and depth of my response reflecting our responsibilities. We view Monetary Policy as part of the praying work framework as the last line of defense. You are absolutely right. The most notable development in terms of mortgage lending as a trend has been the increase in higher loan to income mortgages. For example, high loantovalue mortgages are well below the levels prior to crisis. Other lending standards have held up quite well. The npc will take into account a few things. One of them is the improvement in underwriting standards. Because of the institution of the mmr. Unlike prior to the crisis, when that income number was suspect in some cases or overstated, it is much Higher Quality now. That is to the positive. Mortgages areand, not just for christmas. There over the balance of peoples lives and the need to be affordable over the course of the life of the mortgage. Hard at various measures of affordability, potential owner abilities, dead overhangs that are being built up. There are a range of tools that the fpc could take, could employ to address those former abilities. Vulnerabilities. Decisionstake those as a committee in subsequent meetings. I wondered if the individual lenders members of the panel thed give us an idea of levels of Spare Capacity they personally believe remains . The point i should first of all say is that this press conference is supposed to be about the general view of the Committee Rather than individual views. The other thing i would say unlikee capacity things like gdp which you can define and you could make a potential output and unemployment, not things that we can observe in the real world. These are things that have to be inferred and you need an economic model to make any statement about them. For me, that means that there are essentially highly uncertain things. It does not make sense to try to put very precise numbers on them. , the whole ofview band. 5 i could see the amount of Spare Capacity being smaller or greater than that. That reflects the reality, a lack of knowledge, about the extent to which the economy can expand without generating additional inflationary effect yours. Factors. I would counsel people to not get hung up on precise estimates. Very good. For those of us who were here 10 years ago, 2005, we heard the bank of england saying taking great comfort from a benign inflation forecast looking forward and reasonably strong growth forecast. They said the bank would be extremely vigilant about other risks and the economy. I noticed that your inflation forecast on unchanged rates shows rises only 2. 39 , which most people would say would be absolutely fine. Why should we take great comfort that this time is different . I will cut into your question this way. I will give you a followup if you think im avoiding it. Take and we institutionally take from the of the period prior to the crisis is that you can have periods of price stability. The bank to deliver on its inflation target and on its mandate. What was not part of its mandate were issues around Financial Stability. The objects, but it did not have the tools to help deliver on that. , where different today the risk lies more broadly, in terms of sustained, durable, balanced expansion, our risks to price stability and Financial Stability. Those domestically are centered and risks associated with the Housing Market. There are risks in the Financial Markets as well that we have to be aware of. The difference is that today we have a much broader suite of tools. We have a much clearer mandate of responsibility to help mitigate risks. I dont think we can eliminate them, but their actions we can take. What were are doing as an institution is to ensure that ,he various committees analysts, professional economists are sharing analysis, talking to each other, understand the policy reaction functions and reactions of each of the wings of the bank of england, so that we act in a way to fully exploit the synergies between the fpc, the mpc, and the pra. To ensure that an environment of relatively predictable low, stable inflation that the npc is committed to deliver is not associated with great risk to Financial Stability at the same time. You said you did not want to endorse a market view of her Interest Rates. Of Interest Rates. Will not wait until Spare Capacity has been used up before you begin to tighten policy. Constantast shows that Interest Rates inflation will be above target over the forecast period. Twosomewhere in between the is, given our best knowledge, applies a certain reaction. It is not a decision we need to make today. A not publish they spit specific policy path. In the report and in my comments, we provide as much guidance as i can about the mediumterm path where Interest Rates will go, which is limited and gradual increases over time. About used this phrase remaining at or around the store lows. Historic i just wondered, is this an indication that the new rate is around 2 . It is not that specific, no. How would employment growth as a record, how is that not escape velocity . When we talked about escape philosophy it has been philosophy it has been velocity it has been not as a single driver of growth, but also as a supplyside response in the economy. Lets take those in sequence. We are seeing initial signs of greater balance to growth. With the revisions consistent with survey evidence, there is a greater contribution of investment. Investment plays a central role in the durability of our forecast going forward. We need to see that sustained in terms of investment. We have greater balance moving away from Household Spending. , wethat balance to sustain need to see the supplyside response. We need to see productivity pick up. That is the only way we will see sustainable wage growth. That is the only way to sustain a reasonable Household Spending forecast. In this happened recovery is that there has been a reduction in uncertainty, a sharp fall in the savings ratio by households from very precautionary levels to much more reasonable levels, and that has given the kick to the recovery. An additional reduction of the savings rate early on in the forecast. Then consumption is going to be driven by real wage growth. That is going to require productivity growth. We are at a point where we are seeing some broadening of demand to investment. It needs to sustain. On the not seen the turn supplyside. Productivity growth is still choppy and low. We are only beginning to get to the point where we have thought that we would start to see real wage growth happen. It has not happened yet. That is the bank of England Governor Mark carney presenting the Inflation Report. The headline seems to be the level of Spare Capacity in the economy has narrowed slightly, to use his words, in the last three months. To make greater inroads into the slack before raising Interest Rates. He is Still Holding off in these forecasts in an increased in the Interest Rates. He is. Saying we are edging closer. Is verytake away for me much deferring anything about the Housing Market to the fpc. He said Monetary Policy is not the tool to look after the Housing Market, to temper the house prices we have seen. Completelyentance disagreed. He said you need to start raising Interest Rates right now. Otherwise you will have to hike them at a later date. If you want them to be gradual, he wanted to be a gradual increase in Interest Rates. To tackle it have now, rather than later. We will continue to hold focus on this. We will have a big interview coming up as well. Russias foreign minister. He will speak to us at 7 00 a. M. New york time. Do not miss that interview. Surveillance takes over. Us for our european viewers. Lets head back to the bank baf england. Surveillance this is bloomberg this is bloomberg surveillance. The new neutral it means china will stumble. At macys, they parade to new retail glory. Good morning, everyone. This is bloomberg surveillance. Live from new york. I am tom keene. Fu, adame, scarlet johnson. We can do an entire hour on the new york rangers. Scarlett and i are exhausted. We sit up, you did not. At 8 40 went to bed five. Were they leading . Yeah. Awesome game. I have to get into some tickets. Call my buddy, get into some tickets. Love it. Here is what we had overnight, for those not watching hockey. Some reasonably good data. U. K. Unemployment fell to a fiveyear low, 6. 8 , for