What’s going on with the UK economy right now?

Added: 2026-05-13

[00:00:00]Where in the middle of all of this chaos is the chancellor? Because as far as I can tell, Rachel Ree is meeting with a local bookshop owner in number 11 this afternoon and hasn't really said much else. How real is the threat of economic chaos and what can you do about it?

[00:00:15]Joining me in the studio is Ben Kumar from 7 Investment Management and Lord Jim O'Neal, a former chief economist at Goldman Sachs, commercial secretary to the Treasury and adviser to Rachel Reeves when the Labour Party were in opposition. Jent, thanks very much indeed for coming in. Um, Ben Ben, let me start with you. Um, what is the city saying about this political turmoil?

[00:00:32]>> Uh, how would I sum it up? Oh, no. Not again. Yes. You know, not again. Not this more uncertainty, more who who's going to come in? What are their policies going to be? If no one, if no leadership changes, does it mean that there's going to be further change to the plans that were set out? I guess when it comes to government borrowing, it's yet another sign that you need a credible long-term plan, and there's not much evidence of one at the moment. You said 30-year government bonds at 5.7%.

[00:01:00]They actually went up above 5.8% fell back a little bit, but it's not good.

[00:01:05]You know, if you want to borrow money, if you want to credibly invest for the long term, um you'd like to do that as low a rate as possible on the international market.

[00:01:13]>> Jim, why is that happening?

[00:01:16]>> Uh partly for what Ben said. Um it's just yet again. Um and people are definitely fearful of whoever might appear to replace the current PM. I suspect myself it's not being discussed in the markets that there is also a slightly growing premium for our friend Mr. Farage and certainly when I look at it analytically if people are worried about what any of this lot might spend and what we've been through with Liz Ch etc etc if you look at what if you actually look at what reform are saying >> oh my god >> so they're not so in your view they're not just pricing in whoever comes next after karmad they're pricing in reform >> I I think there's I my own view and I probably feel this more than the markets do. But it seems to me this is coming in them. We're living in cloud cuckoo land.

[00:02:14]We have no one that wants to be serious.

[00:02:17]I've talked to you about this before, Tom. Yeah.

[00:02:19]>> We have nobody that wants to be serious about the four or five obvious big things somebody's got to be honest about if they're going to be a sustained leader in this country, irrelevant of which political party. And and and what adds to the sort of slightly weirdness of it, voters seem to think, you know, somebody comes in because we didn't want the last lot and they get half an hour's bit of respect and support and then they get sucked into like, well, they sound better because that person is telling them they're not going to do anything other than provide them with goodies.

[00:02:51]And it's cloud cuckoo land. And we >> we need to get real. And and the prize for somebody that will I think is pretty big because it's not that the issues that need to be dealt with aren't aren't that big if somebody were prepared to be honest about them.

[00:03:06]>> What what's the um what's the biggest issue that someone needs to be honest about?

[00:03:10]>> You're going to say pensions, aren't you? I know he's going to say pensions.

[00:03:13]>> I mean the triple lock is ridiculous.

[00:03:15]>> Thank you.

[00:03:16]>> Um the misallocation of so many welfare payments has become ridiculous. I think million people claiming three PIP payments more than the minimum wage.

[00:03:27]Everybody knows it. Nobody stops it. Um all this talk about housing reform. We have the most idiotic tax system about housing.

[00:03:37]And then on top of it all, we have this sort of a cross party belief that we can increase spending on NHS forever.

[00:03:45]Uh and it we don't need particularly in this age of uh AI. I mean, which could if applied properly could if we had somebody that said we're actually going to cut >> the share of spending on the NHS and that's going to control us on what we're going to do. But it's it's got to be real. When Maggie Thatcher was finishing or I was coming out of university, we spent as much on education as we did on health today, which which is sensible.

[00:04:11]Today, we spend three times more on health than education. And if we don't get real in the manner in which uh Lord O'Neal suggests, Ben, what what is the the price that the UK plc is going to have to pay? Huge increase in debt costs presumably >> increase in debt costs. I don't think it'll be overnight, though. It's just more and more of this. Every 18 months, you get another change in leadership, another new plan. And and I'm completely completely with Jim. There has to be some pain. It's not that someone just hasn't done the sums.

[00:04:40]>> I'm not sure. I'm not sure it's pain.

[00:04:42]It's just I think the markets would reward UK PLC so much that that would cause such a boost in financial conditions. Consumer and business confidence would would rise a lot.

[00:04:53]>> I guess it's voter pain, right? You're going to have to someone is going to be unhappy if you cut spending if you raise taxes or if you borrow more. Borrowing more hurts us all in the short term and the long term. If you you know if you raise taxes, there's not a load of appetite for that out there. Um, and if you cut spending, when you cut it from pensions, and I have a I I completely agree. You can't keep spending 146 billion pounds a year, inflation linking it two and a half%. You can't do that.

[00:05:20]But I think the big problem is it's it's death by a thousand cuts. Everyone comes in, everyone comes in with a new plan, it doesn't work, and then borrowing yields go up again and again and again and again. And I will just say this at a time where in the world it is there are opportunities to attract people and talent. Places like the Middle East have you know been drawing a lot of lot of um talent to them. Suddenly it doesn't look quite so attractive anymore. The UK is in a perfect position to do this. If we were to seize the opportunity maybe you don't want to go to the US. We've had a lot of students choose UK universities but if if we keep messing it up they'll go elsewhere.

[00:05:57]>> I I would throw in take issue slightly with Yes. It has been drip drip drip.

[00:06:02]But I think we're now at the point where if we go through the labor machine doing its own almost precise version of what the toys have done because the other thing we've not talked about yet, this idea that you can bring in whichever ambitious person without going back to the electorate.

[00:06:18]>> I I'm not a political analyst, but that strikes me as strategically a pretty disastrous thing to do. And and again, it's linked to this where we're not really going to do anything that really hurts anybody. I think there is a growing risk of a significant escalation in the financial market reaction because people can see they're living in dream world whether it be the the potential new leaders.

[00:06:40]>> How would that risk show itself? When would >> we could instead of having 20 basis points rise in 10 year bond yields the past two days we could find it being 100 basis points in a >> 1%. So it could six or seven% is is what >> and what does that mean for my listeners? It would mean a massive increase in mortgage rates for a start.

[00:07:01]>> Uh which would obviously cause a lot of pain to anybody that has to borrow a lot of money to pay their mortgage. It would uh have all sorts of other consequences for things that are linked to official rights.

[00:07:14]>> How is this overcome? Who and who's going to do it? What are the mechanism by which a political character, whoever that character might be, steps in and does the things that you want to do? I mean in my old life of being in finance, one part of me answering is you have to go through it to force reality and you know it's a bit of to some degree it's a bit of the historic French problem inside of Europe because France is always so close to Germany. We've never had a real crisis in finan French financial markets unlike Italy and Gree but you know look at Greece Greece went through a hell of a mess past few years Greece has been the strongest growing place in Europe because it's changed.

[00:07:51]Are we in that Greece death spiral?

[00:07:54]>> Not as bad as Greece.

[00:07:55]>> Not yet. But we if we're not careful and we carry on trying to support somebody saying, "Oh, I'm going to come in and give you another lot of goodies that I haven't thought of." We might not be that far off. It's really we need to change the mindset of everyone. It's it's delusional and and it dealing with it shouldn't be regarded as pain because the reward, you know, the financial markets can play the other way. And uh as Ben touched on, I've just come back from the States where there's all sorts of issues going on about our friend Mr. Trump.

[00:08:27]>> You could get a huge amount of money coming from the States, never mind the Middle East.

[00:08:31]>> Um without wishing to get too personal, I'm going to get personal.

[00:08:34]>> Is Rachel Reeves part of that delusion?

[00:08:37]>> Is she delusional?

[00:08:38]>> Uh I think Rachel is being constrained by her nextdoor neighbor. Uh, and of course stating the obvious, the financial markets do respect the fiscal rules that she's stuck to. And the other important thing I would add, which I think if it were Andy Bernham, by the way, we'd get a flavor of more. She's also stuck to trying to grow public investment spending, which I think is desperately needed as part of these other things I've said. First finance minister we've had >> uh in at least 25 years that's done that.

[00:09:10]>> Huge huge rise in taxes. She told we weren't going to see national insurance rises hit employers. The business >> I'm not sure a lot of those decisions were made by her. I think I think as we often see um and it's a bit of a miracle how number 10 and 11 have stayed together. We often see that you know the life of a finance miners comes to an end because they get so cheesed off with what they're being told to do by number 10.

[00:09:35]>> When was the last time you spoke to Andy Bernham?

[00:09:37]>> Recently.

[00:09:39]>> Does he want to be prime minister?

[00:09:41]probably.

[00:09:42]>> Do you think he's down in London? Why do you think he's down in London?

[00:09:46]>> He comes down here pretty often.

[00:09:48]>> You think he's on a sightseeing tour?

[00:09:49]>> As somebody who is heavily involved in Manunian stuff and the north, I I worry that all of this could lead to uh a significant issue for Greater Manchester. You know, one thing that I don't think gets talked about down here is that if Andy does go for it, uh we might have to have uh an election for a new mayor. And given the latest opinion polls, that could be a reform person.

[00:10:16]>> But do you do you want Andy Burnham to be prime minister?

[00:10:19]>> I I think we need to respect um the public. And I don't, it was quite clear to me that one of the things that's really caused damage to the touries is that they brought in two new prime ministers despite the fact the public didn't really want them to. This government came in with a very weak mandate from the public. We've just seen what was said on Thursday. And so the idea they just bring in somebody else, whoever it is, and I like I've got a huge amount of time for Andy. I don't think it's the right thing to happen. if if it is gonna and I'm going to contradict myself because it's pretty clear that the PM is losing a lot of support. Um Andy has presided over a fantastic story in Manchester and so long as he had some proper uh perhaps stronger fiscal rules and I don't mean that by just being tighter. I mean even more cuddled ones that allow for more.

[00:11:13]>> Well, he can't tell the bond market to go swing as he did in an interview a few months ago and he's got and he has to row himself back a lot from that. That's for sure.

[00:11:20]>> So, so if if leftwing Labor MPs are hoping for someone to come in and just say, "Nah, well bond markets take a running jump."

[00:11:25]>> Guaranteed crisis virtually guaranteed.

[00:11:28]>> How did he back on that given that he said it given that's one of the things that people like about quote unquote burnism or Manchesterism?

[00:11:36]>> I don't know. That's for Andy to figure out.

[00:11:38]>> You get on the phone to him.

[00:11:41]Great to see you. Thank you for coming in. Appreciate it. Lord Jim O'Neal, former chief economist at Goldman Sachs, commercial secretary to the Treasury, adviser to Rachel Reeves when the Labour Party were in opposition. Benkumar is also here of course from seven investment management.