Newscast

The programme opened with a discussion of rising bond yields and the pressure on the UK government's finances. Presenters and IFS director Helen Miller noted that global factors, including Japan's changing interest rates, tech firms' demand for cash, and Gulf tensions, were pushing up borrowing costs, but UK-specific concerns about the credibility of spending plans and tight fiscal rules were also relevant. The higher interest rates were said to reduce Chancellor John Healey's headroom ahead of his first budget, with the assumption for the 10-year yield having risen from about 4.5% to over 5%. The discussion then turned to defence spending, with Defence Select Committee chair Tan Dhesi pressing Prime Minister Andy Burnham at PMQs to commit to 3% of GDP by 2030, while the PM referenced a commitment to 3.5% by 2035. Helen Miller explained that increasing defence spending to 3% would consume the entire planned increase in state spending, forcing cuts elsewhere or tax rises, and that the government needed to decide its overall spending envelope at the budget rather than deferring to the spending review.

The conversation then shifted to the potential for a bubble in AI-related tech stocks, with Bank of England governor Andrew Bailey having warned of a possible burst. The presenters noted that serious people in Silicon Valley claim AI will replace large swathes of the workforce, and that pension funds are heavily invested in US markets, which could lead to significant losses. They also discussed the timing of defence spending increases, questioning whether the need was driven by Russia or by the current US administration's stance, and whether a future US president might change the calculus. The discussion concluded that now is the time to get public finances in order to prepare for future shocks.