The economy too much. To dicsuss this further im nowjoined by the Bank Of England 5 former head of international surveillance, katharine neiss. She is now the chief european economist for pgim fixed income. Good to have no surprise that Interest Rates are still rising. Do you think that this is it . ~ ,. ,. , is it . The banker very clear today that if inflation is it . The banker very clear today that if Inflation Remains is it . The banker very clear today that if Inflation Remains resilientl that if Inflation Remains resilient at higher levels, then they could see Interest Rates are going higher from here. That said, to me, the really big message coming out of the Bank Of England today was, even in the absence of further rises in Interest Rates, they really see these higher Interest Rates that we have seen more recently as he had to say for quite some time. Yes. Have seen more recently as he had to say for quite some time. Say for quite some time. Yes, and this is taming say for quite some time. Yes, and this is taming inflation say for quite some time. Yes, and this is taming inflation that say for quite some time. Yes, and this is taming inflation that is this is taming inflation that is proving to be so tricky. Why is a uk seemingly such an outlier . We are seeing it start to fall in some other developed economies, particularly in europe and the united states, and yet, still proving to be so sticky here . Well, the uk is being proving to be so sticky here . Well, the uk is being affected proving to be so sticky here . Well, the uk is being affected on proving to be so sticky here . In the uk is being affected on both sides. On one hand, we have got a very tight Labour Market similar to the united states. On the other hand, we are also seeing the ripple effects of Higher Energy prices as a result of Russia Pass Invasion of ukraine impacting on European Energy prices. So, the uk is really being affected by a double whammy, if you like, of those inflationary pressures, and that explains some of the more resilient and sticky inflation that we are seeing here. As we said, the rise in Interest Rates is a rather blunt tool. It is designed, bluntly, to make us poorer, so that we stop spending. So much of inflation is imported, coming in from overseas, like Higher Energy prices. Does really have desired effect . Energy prices. Does really have desired effect . ~. , desired effect . Well, the impact of a hither desired effect . Well, the impact of a higher interest desired effect . Well, the impact of a higher Interest Rate desired effect . Well, the impact of a higher Interest Rate is desired effect . Well, the impact of a higher Interest Rate is that desired effect . Well, the impact of a higher Interest Rate is that it a higher Interest Rate is that it raises the cost of borrowing. That affects households who are going to face higher Borrowing Gusts for things like taking out a mortgage, purchasing a car, it is going to make borrowing more expensive for firms, and so, you are going to see households and businesses stepping back from plans to expand their businesses or to take on new consumer borrowing. And, that should help to ease the economy, and to bring inflation back to target. Turning to your question specifically, the effect that the Bank Of England is seeing now, and thatis Bank Of England is seeing now, and that is really underpinning these higher Interest Rates, is that higher Interest Rates, is that higher prices have rippled out from energy and food into other things Like Services inflation. And, that in turn is feeding in to higher nominal wages. In turn is feeding in to higher nominalwages. So, in turn is feeding in to higher nominal wages. So, that suggests that what may have started out in part as an external shock to prices is starting to affect domestically generated inflation, and it is there that the Bank Of England is concerned and responding to these higher Interest Rates. figs concerned and responding to these higher Interest Rates. Higher Interest Rates. As you have highlighted. Higher Interest Rates. As you have highlighted. It higher Interest Rates. As you have highlighted, it also higher Interest Rates. As you have highlighted, it also prevents highlighted, it also prevents businesses from expanding growing perhaps in a way that they would, because borrowing is more expensive. And therein lies the dilemma, how do you make sure businesses stay on track without the railing of economic recovery, but also calling concerned consumer spending. It is a Balancing Act. It concerned consumer spending. It is a Balancing ActBalancing Act. It is, it is a balancing Balancing Act. It is, it is a Balancing ActBalancing Act. It is, it is a Balancing Act between. Balancing act. It is, it is a i Balancing Act between clear Balancing Act. It is, it is a Balancing Act between clear signs that the economy is easing, we see that the economy is easing, we see that in vacancies, they are dropping off rapidly. That tells us firms are stepping back their hiring plans against a picture of uncomfortably high inflation. And, i think that that balance probably is why. Or a key factor, behind why the Bank Of England chose to raise rates by 25 basis points and not a more aggressive 50 points, as we saw last month. ,. ,. ,. , i. Aggressive 50 points, as we saw last month. ,. ,. ,. ,. , month. Great to hear your thoughts. Thank ou month. Great to hear your thoughts. Thank you for month. Great to hear your thoughts. Thank you forjoining month. Great to hear your thoughts. Thank you forjoining us. Month. Great to hear your thoughts. Thank you forjoining us. Now, month. Great to hear your thoughts. Thank you forjoining us. Now, we i month. Great to hear your thoughts. | thank you forjoining us. Now, we go to the us. Revisiting the news we brought you just yesterday when the Ratings Agency fitch striped the Worlds Largest economy of its top credit rating. Downgrading its ranking from triple a to double a plus citing concerns over spirally National Debt and mismanagment of the economy. Drawing this response from the us Treasury Secretary janet yellen. The decision is puzzling in light of the economic strength we see in the united states. I strongly disagree with the decision, and i believe it is entirely unwarranted. It is a flawed assessment based on outdated data and fails to reflect improvements across a range of indicators, including those related to governors. That we have seen over the past 2. 5 years. Governance that we have seen over the past 2. 5 years. Studio welljoining me now me now is one of the main people behind that ratings cut Richard Francis co head the americas Sovereign Group at fitch ratings. Thank you for being with us. So, we heard there, she is puzzled, why did you do it . I heard there, she is puzzled, why did ou do it . ~. , heard there, she is puzzled, why did ou do it . ~. , you do it . I think that the numbers seak for you do it . I think that the numbers speak for themselves. You do it . I think that the numbers speak for themselves. We you do it . I think that the numbers speak for themselves. We have you do it . I think that the numbers speak for themselves. We have a, | speak for themselves. We have a, those figures are nearly double where they were in 2007. That is a steady rise in debt. It is now nearly three times the level of the triple a median, so much, much higher. So, we have fiscal deficits that are expected to rise pretty sharply over the next three years, and furthermore, because of the high Interest Rates and the debt burden, we have the Interest Burden rising rapidly as well. That is relatively new. So, ithink rapidly as well. That is relatively new. So, i think that the fiscal picture is bad, and furthermore, we have a very high level political. In the us, and that makes it difficult to tackle these fiscal challenges. We dont expect anything to happen, the 2024 election. Someone so that that is nothing new. The American Economy has been here before. We have talked about them almost defaulting on debts before. In the report, you state the steady deterioration in standards of governance over the last 20 years, notjust governance over the last 20 years, not just at the last year, the last 20. Why make this decision now . Remember, we put the rating on watch negative at the height of the debt ceiling, yet again, but you mentioned, this is not new. It pops up mentioned, this is not new. It pops up every two years, more or less. And, when we put the rating on watch negative, we said that after the resolution, it would result in the watch in the third quarter. We took our time, we looked at the impact and the fiscal responsibility act, part of the revolution, we want to look at the political dynamics, in the aftermath of what we saw around the aftermath of what we saw around the debt ceiling debate. And, we wanted to rerun our numbers based around the new recommendation, and when we took a look at all of these factors, itjust became very clear to us that the us does not look like a triple a any more, and that led to the downgrade. You a triplea any more, and that led to the downgrade the downgrade. You talk about the brinkmanship. The downgrade. You talk about the brinkmanship, lucky the downgrade. You talk about the brinkmanship, lucky other the downgrade. You talk about the brinkmanship, lucky other report, | brinkmanship, lucky other report, perhaps one of the factors the january six attack, when you talk about standards of government. Do you worry that by downgrading the us economy, you stoke some of that Political Tension . We know that the democrats blame the Republicans Holding the economy hostage when it came to those negotiations, and at the same time, the republicans simply blame democrats for spending too much. Who is right . I simply blame democrats for spending too much. Who is right . Too much. Who is right . I think there is blame too much. Who is right . I think there is blame to too much. Who is right . I think there is blame to go too much. Who is right . I think there is blame to go around too much. Who is right . I think there is blame to go around on | too much. Who is right . I think. There is blame to go around on all sides. I dont think it is one of the other side pass primary. The reason why the debt is so high is from both parties. And also, the polarisation makes it difficult to see if there is going to be any effort to tackle the entitlement programmes, security, medicare, there is no appetite to raise taxes, and there might be the tax becoming permanent. And there might be the tax becoming ermanent. ~. ,. ,. ,. , permanent. What would need to change for ou to permanent. What would need to change for you to upgrade permanent. What would need to change for you to upgrade the permanent. What would need to change for you to upgrade the forecast . Permanent. What would need to change for you to upgrade the forecast . To for you to upgrade the forecast . Trr upgrade the forecast for the rating . The rating. You upgrade the forecast for the rating . The ratinu. ,. ,. ,. , the rating. You would probably have to have a significant the rating. You would probably have to have a significant agreement the rating. You would probably have to have a significant agreement on l to have a significant agreement on the fiscal side that reduces the deficit and re stabilises the debt, and i think that i would speak to the governance, because the reason that he got to that agreement was because both sides were willing to talk and make difficult decisions. It has been very interesting speaking to you. Thank you for being with us. Talking about what has been a very big week in terms of the us economy. Those are your Business Stories this hour, across the world and across uk, this is bbc news. Meet the cheshire ghost riders, they are gearing up for the cheshire ghost riders, they are gearing upfora the cheshire ghost riders, they are gearing up for a home at World Championships. It is gearing up for a home at World Championships. Gearing up for a home at World Championships. It is a whirlwind of emotions, championships. 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That is the highest rate in 15 years, it comes on the back of stubbornly high inflation in this country. That stands at 7. 5 . The banks remit is to bring down inflation to 2 or lower. What impact will this have on the Economy Andindeed impact will this have on the economy and indeed the Labour Market in this country . We cross to this guest. Thank you forjoining us. What is your reaction to this 14th rate rise . I your reaction to this 14th rate rise . ~. ,. , your reaction to this 14th rate rise . ~. ,. , rise . I think that what we are seeinu rise . I think that what we are seeing now rise . I think that what we are seeing now is rise . I think that what we are seeing now is the rise . I think that what we are | seeing now is the government flirting with recession. I think that this news will be very concerning for people across the economy, whether they are facing increased mortgage gusts, whether they are looking at those figures behind the banks report, which is that unemployment will see a pretty sharp rise. And i think what we are seeing is, not only the bank