>> standoff at the border and go border.end of the a surge on better-than-expected earnings. welcome. we are live from the european

head quarters in london. on the program, blink and you'll miss it. we check out a car that can blocks each of nearly 300 miles per hour. we give you an inside look on how businesses are faring. we begin with our top story. the bank of england inflation report. mark carney had comments. when it will raise? we are joined with a preview. a reminder. bring us up to speed on when we expect a rate rise. >> they say sometime in the fourth quarter of this year. the more dovish would say the first quarter of next year. there was a great conversation on the table. they said they should have raised rates and they are coming

from a low base. take action and be ahead of the curve. mpc, theyas on the would raise rates. they carry 140% that. macrooes well with the economic outlook. you are looking at a set of data that is improving. i like what ubs said. they said it is about slack and the extra capacity in the economy. capacitysurvey was on utilization. how much are you using up? are they all going out? that is the utilization. cranking themt is down. it comes down to carney highlighting more divergent views with slack and capacity. you have heard them talk about

economy.% in the it has been that way for three quarters in a row. look, three quarters of reports , we are cranking out gas. everything is moving and is much. can you still stick with that amount of slack? >> it is the wages where you are not seeing the pickup. what say you? that.t focusing on he talked about how they should be informed. you look at all the indicators to flash red and you are left behind. we are going to get wage and unemployment data. >> you will get those at 9:30 and what you are looking at is wages under pressure. is that going to hold?

.terling have a look at the dollar-sterling. it is a fantastic story. he raised volatilities to a whole new level. he said that they are not assessing risk properly. bang. up she went. the market has given all of those up. the market presumes a dovish and to the year. marketlysts are paid by participants to make their view. the employment is rising. self-employment is an indicator in the economy and the indicator of a whole new paradigm shift. it is the way we work and the way we are remunerated. >> thank you. that is the latest from the bank of england and we will bring you the inflation report in full in the next hour.

let's turn to the ukraine. a russian convoy is making its way to the border. what happens when they hit the front here. that is the question. ntier? fro that is the question. thet is 40 kilometers to border and 70 columnar's to the big city on the other side. trucks are the supposed to go on. it is normally a city of 500,000 people. had no weeks, they have electricity and have been surrounded by ukrainian forces who are intent on getting the

separatists out. will barnians say they the entrance of the convoy because it may not have aid. committee for the red cross, cordoning with russia as recently as a couple of days ago, now appears a bit anxious. securityd serious guarantees and direct contact with all the parties. we need to know what is in the convoy and the size of his convoy. and, the various materials handed over. >> the russians say they have provided exact lists of the convoy -- for the convoy. it is on a website and you can read it. the ukrainians maintain that they do not believe it.

check out the map that shows the route. is this the road to reconciliation or war? we do not know the answer. >> what are they saying? >> the russian stock market opened up for the fourth day in a row and is the biggest street in two months. the stock market is shrugging off the concern. having said that, the stock market is off. we saw ukrainians concerned about the situation and we saw panic buying of dollars. the national currency is down this year and is the worst performing emerging market currency out there. the central bank has defended the currency and things could

get very ugly. we are close to a nine-year low. remember that the imf is backing up the ukraine. >> thank you for the latest on the convoy. the european corporate theme. we are watching this carefully. the ceo says they are monitoring the crisis with a concern. hans nichols joins us from berlin. standoff from russia and the west affect energy businesses? >> so many ways. russia. gas from the supplies are decent. even if the flow of gas stop today, they would have until the middle of february before the supplies of the exhausted.

the other aspect of this is currency. obviously, there is a big play outside of germany and they are trying to have other revenue streams. you saw the revenue outside of the eu was down and the profit was down 26% stopped that is profit and not revenue. wasall, the expectation 25%. expectations are baking into this and the stock is up this morning. e.on is a company in transition. in some way, i should be a chief energy correspondent. there are so many changes here. they want to be 60% alternative 23% right they are at now. countries andg at getting killed on the currency.

that is why the earnings are down. but not just the currency. depressed by wind and solar generation. that impacts the water sector. .e look at other players >> we get ready and that will be interesting. do not have the outside of germany footprint. all of the big utilities are outside of germany to chase the profits. eroded because of a strong euro. is a very weak currency and it is a currency that will only get weaker, if you think the federal reserve is going to tighten. >> thank you very much. up, the tipping point.

the ukraine closes in on rebels and we take a look at a playbook after the break.

>> welcome back. let's bring the focus back. ready to block a russian convoy heading towards the border and the military endgame

approaches. vladimir putin has to decide how far he is willing to go. our next guest says that the next couple of days and weeks are going to be intense for the kremlin. how do you weigh what is happening at the moment with him intent is.ir putin's >> frankly, it makes no sense and russia has been able to cross the border for quite some time. ofy have been accused supplying weapons and it does not make sense that this is a convoy. >> assuming that this is. and thets pressure international red cross confirms that it is a convoy army. the pressure switches if it continues to block a convoy.

it puts more pressure on the government to accept it. i am assuming that they do allow a convoy to crash and we are in a situation where negotiations for peace talks are good. not a military intervention. it is a negotiated situation. >> far from being what it could do, this could be an all french. >> we have to see what happens. it does not make sense that this is a military gambit. they could have done that by direct means. you lose a lot of credibility is that is what it is. it is not an olive branch. it switches the pressure on to kiev if there is a convoy. if they refuse, the pressure

builds. it is smart. >> how is the strategy going down in russia? -- a frenzyend of of t-shirt buying. building.pressures for example, food inflation measures taken to block incoming measures from europe. how long will people go along with the strategy? >> a key question and popularity has been high. there is reacquisition. look at it positively. it is almost at a record high. backdrop where a there was a negligible economic impact in russia. the last six months have been and, unless you were

reading the news, you would not know that there were sanctions making an economic impact. that is starting to change and it is rising and we have inflation peaking. it will come down by the end of the year. it is more likely to reach an -- 8%. last set of sanctions excluded state banks from the international debt market. quentin had an impact on credit interest. but exactly. households are spending a larger amount of their income and they are finding it difficult to access debt and expensive. we are starting to see a noticeable impact on the economy. what isquestion is happening last through the winter. i expect to see food shortages. question if you have to weigh out the affect of the official announced sanctions against the

self-sanctioning by western businesses in forward strategic thinking, how significant are they against one another? >> the official sanctions are not that damaging. round, they can get that domestically and there is a lot of savings. it is the risk managers and banks across the u.s. replicating what the governments are doing and they are blocking access to credit and risk. in july, no russian companies. that is the first time that has happened. long-term damage and the disruption to the supply chains comes down to the next couple of days and weeks. lineremlin needs to draw a on the conflict and there cannot be any more sanctions. the next sanctions will exacerbate situation.

it could get worse. >> thank you. that is the latest on the ukraine. let's turn to company news. the second-quarter profits today. the chemical manufacturer says effects are offset by the stronger euro. i am joined by the chairman and ceo. thank you for coming to talk to us. tell me about the strength of the euro and how it impacts your business. you?o how does it feel to a business? >> good morning. strong and it affects us in two ways. it is translational effects of having sales another current these trends waited into euro numbers. the currency is -4.5%. this is offset by strong organic

we have the portfolio affect of 3%. translates to overall growth. the other effect is on the margin. creation rests in the eurozone. theave been able to offset euro and efficiency gains in the top levels. >> would you say it is too strong? >> no. andencies are what they are companies have to deal with the. believed in a weaker euro and i did not believe in it too strong euro.

a company and as a management, you deal with the discussions of whether they are too strong or too weak. had to deal with geopolitics and many have operated in russia for many decades. perhaps more than a century. experiencingou are the impact as it is being developed in russia and the ukraine. >> of course, there is an economic answer to this with and to to energy suppliers. car suppliers and so on. a relativelyis limited impact and our exposure above 100is slightly billion euros and it is mostly in pharmaceuticals.

so, the impact of the current russia crisis is limited. >> you expect that to change? do you make contingency plan to -- plans in case it does? >> not for our business. it is pharmaceuticals. they are needed. i do not think they will be impacted by any sanctions going forward. course, they can be impacted by buying power and it impacts our business. it is not a major issue for america. >> can i ask you a question with a broader outlook? the illness is something being talked about at the moment i've many pharmaceutical businesses and another that you operated in a number of african countries. i wonder if you can weigh in on

the subject or give us any sense of a viable solution ahead. saw in i read and what i thatield of possibilities are not approved medicines that could give some help. it seems to be a major problem where we, as a company, cannot offer any specific help. infectionsen virus going through the decades and mankind has always been able to fight with it and deal with it. that there is more in the public domain today. >> ok. i'm sorry.

i am going to have to jump in. thank you for the comments. the ceo. we will take a break and be back in a few minutes stop -- few minutes.

>> meet the red bull air force. they jump out of airplanes and hadmost recent son -- stunt them drop in on an aerosmith

concert. up next, insight into mark carney and his next move. on the bring you that pulse.

." welcome back to "the pulse i am anna edwards. u.k. unemployment data just breaking now. u.k. second quarter average earnings falling by 0.2%. that is worse than the market had been looking for. the first decline since 2009. the unemployment number, that number is come in at 6.4%. that is matching forecasts. coming down from 6.5% last month. exactly as had been expected.

that average earnings number falling 0.2%, the first decline since 2009. we will dig through more of these details. generally speaking, that unemployment rate coming in as expected, a lower level, continuing to see and approve meant in that month on month. let's get the jonathan ferro outside the bank of england. unemploymenton the rate at six point 4%. a little bit of a surprise for some, but the average earnings number has fallen by 0.2%. >> wage growth, where is it? we are talking about wage pressures. you can't see any. for a lot of people in the bank of england, when they start talking today, that is an indication of flak. flak is the magic word today. how much is left in this economy? the unemployment rate is down to 6.4%.

gdp is going to the north of 3% this year. why not put up rates now? governor carney's last speech was called winning the economic marathon. might be a g7 country this year but we were one of the last countries to come out of that slump and get back to a precrisis peak. it has been a marathon. the decision they have to make today is this, do you foresee wage pressures coming later this year? do you want to get ahead of the curve to keep rates low and hikes gradual? risk toou see it as a put up rates now? if you see it as a risk, the economy is not resilient enough for that. there may be an issue there. when you look at wage growth, i imagine the pound is dropping. >> thank you very much. we will go back to jon a little bit later. sterling, 1.6801 currently

trading pound versus dollar. thoughting in for more bill o'neill, head of u.k. investment at ubs wealth management. wages, wages, wages. we were having that conversation just before we got the data. that number, a drop in average earnings for the first time since 2009. doesn't it seem out of step with sinceer else happened 2009 that we are talking about that kind of record being set today? in the summer of 2014 when the economy is growing. >> clearly, it is the ongoing mystery of this thing called the u.k. labor market. extraordinarily strong employment growth. little in the way of response from wages. wage costs are much less impressive. i think you want to see the

number excluding bonuses. the view was that it was likely it would be including bonuses because of the bonus payments last year. we need to look at the month on previous years month as well. my sense here is that the numbers are generally softer than expected. it does put pressure on the bank to explain this. , what doeson report slack mean? clearly, capacity is being used up. underutilization of capacity is declining. ands this type of number off to make anybody who had decided there was going to be a wage increase in november or the first quarter of next year, will this be enough to make them question that? are those expectations going to remain in place? >> i would like to see the number, but clearly it has

lengthened the odds. the market is responding to that. let's put this in context. unemployment has continued to decline. thegap between non-inflation rate of unemployment and the actual rage of unemployment is continuing to narrow. it will effectively be eliminated by the first quarter of next year. the bank is confronted with that. does it emphasize what is happening in terms of unemployment or does it reflect on the wage pressures? we have to look at the inflation report to get a sense of their reaction. some say the lag is longer than usual. others say there is something different happening. low-wage earners are entering the labor market in significant numbers. >> the markets are reacting. 1.6825 beforefrom

we got that number, and now down 68.1. it had been lower than that in the last minute or so. we are seeing some reaction. the monetary policy committee at the bank of england. he was saying that the mpc is paid to look forward. datau wait until all this is flashing red, you will be too late. is that the kind of you we might hear from some on the mpc? real wages and average earnings are only part of this. ,f you are having strong rises about 4% year on year, that has to be taken into account as well. take that by the early part of the new year. there will be a sufficient basis for the bank to adjust its stimulus. inflation objectives

two years forward. >> what are the topics we might hear about today? do you think the mpc is or should be more preoccupied with russia or ukraine, or any weakness in the growth story in the eurozone? >> it was interesting in the last published minutes that you had the constituencies focused on wage pressures. usual, is longer than there is something structural happening in the labor market. there was also a third group that were aware of the risks to the downside, not necessarily the domestic economy. there is little evidence of that. the international market. they will have to address some of the issues of a weaker euro zone. the geopolitical risks around that. i don't think it will be a game changer in terms of the if around whether they move monetary policy.

>> bill, thank you very much for joining us. bill o'neill, ubs wealth management. let's bring you more from our interview that i was just referencing earlier. he is a former bank of england monetary policy committee member. he spoke with jonathan ferro. >> we have had rates on hold for over five years. moste in the sort of consistent and strong period of growth that we have seen for almost a decade now. i andrcumstances in which the other members of the monetary policy committee put interest rate at level have gone away. not everything is flashing red. wage growth is still relatively subdued. we have had higher inflation than we would have expected. thehe mpc waits until all signals on inflation are flashing red, it will be too late. they should be taking advantage

of the fact that the inflation is fairly well controlled at the moment and gradually moving up. that would be my argument. or sixhave had five years to adjust their finances. we have to remember that the economy is not just made up of borrowers. it is made up of savers. -- if we try to run the economy based on a small subset of the population who have an adjusted, we are going to be setting monetary policy on a small part of it. that is not what the mpc should be doing. >> give me some insight into the mpc. how does one dissent? is it an awkward feeling to put your hand up and say, i disagree with you all? find it that difficult to vote in a different direction to other members. it probably helps if there is a group of members feeling the same way. you don't actually --

in my very first meeting on the mpc, i was in a minority. most of the time i was in the majority. the way in which mpc members should approach their task is looking at all the data and forming their own independent judgment. if that takes you to the judgment that we should start to raise interest rates, then i would hope those members would vote in that direction. what you have got is quite a bit of turnover on the committee. some people coming in are perhaps not as familiar with the u.k. economy. i think that could perhaps -- they want to maybe play themselves in and get the hang of the committee before they start making strong judgments. willst a reminder, we bring you the bank of england inflation report live and in full on "the pulse." next, japan contracts. gdp shrinks the most since 2011 as consumption and investment plunged after the sales tax hike.

details of the head. ♪

." welcome back to "the pulse we have had a slew of economic news from asia today. japan's economy contracted the most since the record earthquake three years ago. consumption and investment plunged after an april sales tax increase. david tweed joins us now. what does this mean for prime minister abe's economic program?

is this week and up to make them take a different course of action? >> probably not quite yet. this contraction that we saw in the second quarter is payback for the expansion that we saw in the first quarter. yes, we had that sales tax increase. that meant that people didn't spend as much as they had spent in the first quarter. people rushed to buy really big-ticket items and that helped the economy expand. this seconding is quarter number came in pretty much in line with expectations from economists. prime minister abe is going to be looking very carefully at this in the context of other things going on. example, this is what the optimists are talking about, we have got very high corporate profits in japan. that is partly as a result of abenomics. we also have fairly tight labor market conditions. on the downside, you have got

wage increases which are slower than the pace of inflation. that is not great because it could weigh on household spending. put that in the context of the fact that japan has got this humongous debt and the reason they are trying to increase the sales tax is to increase revenue. it puts a question underneath the next leg of the sales tax increase which is supposed to kick in in october, 22. abe has until december to decide. >> particularly after this data today. moving on to china, recovery looking a little bit risky. the broadest measure of credit plunged to the lowest since the global financial crisis. how big a drop was that? >> it was quite massive. this is aggregate credit, the number that we follow. we don't follow new bank loans and he longer.

they are trying to take in the whole shadow banking market. the number that was expected to grow, ¥1.5 trillion, what we got was more like 270 billion. it was less than analysts had forecast. it prompted the bank of china to post something on its website saying that it expects aggregate financing would be stable in the months ahead. i certainly hope that is the case. anything likeis this, it does show that week are going to have severe liquidity problems. >> what is that big drop? was it a result of some of the policy changes we have seen, the way they are trying to get away from shadow banking, bring things more into the mainstream? or is this a more fundamental concern about economic conditions? >> it is probably a bit of both. in the second quarter, you saw a tightening of monetary conditions after a big loosening

in the first quarter of this year. the real concern is that this is the banks saying, we don't really want to lend. we are not sure what the economy is going to do. that does spell problems for the chinese economy. reaching thatms 7.5% growth target. the likely thing that is likely to happen after that is we will see more stimulus from the chinese government. >> david tweed joining us from hong kong. let's turn our attention to the unrest in the middle east. defense iron dome system has protected most of the residents living near the border with gaza. local companies don't seem to have stayed quite so safe. >> around 32 hundred rockets were fired out of the gaza strip over the past five weeks. with residents of southern israel often the attended

targets. system mayme defense protect most people here, but the impact of this aerial assault is damaging for local business. >> it is not easy. >> and israeli-american father of three lives a 10 second rocket flight from the gaza strip in a village where his employer was founded. he had just returned to the main plant where his colleagues had been struggling to fulfill the daily quilt quota. >> you do 50 or 60. you don't work as quickly. five or six times a day, you run to the bomb shelter. thene consequence of conflict is that orders are falling. this past month, the company's sales dropped around 30% compared to last july.

when it comes to investing in business here in southern israel, there are some unusual factors including security that you have to consider. members of the military could take over your office building. then there is the uncertainty. >> people are struggling with cash flow, with payments, tax payments. the impact is quite severe. >> goldstein runs a plastic manufacturing firm a little further south. industry has played a historic role in communities. that is why the cost of keeping his company close to gaza, national policy also plays a role in the decision. >> it is a combination of trying to be competitive, but at the other end, a long-term view about the way israel should look like. >> for safety reasons, goldstein have cut some ships. costs for shelters, storage and staff have risen. >> providing a risk premium --

>> there are some things money can't buy. that includes peace of mind. the first time, did ask me, what are we doing here? why can't we move? >> what did you say to her? >> you don't run away from your home every time it gets a little hard. give it another go. , bloomberg.rx >> tough choices. let's bring you some company news. first-half sales at the world's largest security firm rose more than 4% and beat analyst estimates. the company says it still has much to do to capture its full potential and plans to sell 15 of its smaller businesses. g4s is the world's third largest private employer. twitter is introducing video advertisement and seeks to broaden revenue sources. the company has found that clips

are effective at drawing attention and engaging users. the trial service will let marketers pay each time someone clicks to watch a video. king digital plunged as much as 26% in after-hours trading after posting sales that trailed estimates. the company also cut its 2014 outlook. king is working to develop a wider assortment of games. the number of players for candy crush declined. still to come, blink and you will miss it. , a cark out the venom v5 that is setting its own speed limit at 290 miles per hour. we will be back with that in a couple of minutes. ♪

>> welcome back to "the pulse." the carmaker hennessy announced that its new model will have a top speed of 290 miles per hour. that makes the venom f5 the fastest production car ever. what is the point of owning a car whose top speed is too fast for formula one racing let alone any road in the world? sam grobart reports. >> recently, hennessy, maker of ludicrously fast cars, announced their upcoming model which is expected to have a top speed of 290 miles per hour. here is my question, who is buying this car? i get it.

there has always been an arms race among automakers for fastest top speed and the venom f5 will be faster than its predecessor which only went 270 miles per hour. but hey, that is faster than bugatti at 268 miles per hour. but seriously, who in this universe needs a car that can go this fast? i am not even talking about speed limits. these cars are faster than the cars in nascar and formula one and those are driven by professionals. with crazy speed comes even more craziness. take that bugatti. at top speed, the bugatti has a fuel economy of two miles per gallon. let me put that in terms that are more practical. if you decide to go all out in the bugatti, that tank will be empty in eight minutes. it is not like you can reach these speeds on i-95.

to get to 270 miles per hour, hennessy had to borrow a landing strip from nasa. it was the only place long enough. all this is lunacy. what makes it crazier is that it is theoretical lunacy. buysu think anybody who one of these cars is going to take it to the limit? people who buy buicks don't take them to the limit. this is bragging rights, pure and simple. it is not about money. these people are as rich as rockefeller. what do they have to prove? >> sam grobart. 270car for people for whom miles per hour is not fast enough. we believe that there. for those listening on bloomberg radio, the first word is up next. for our viewers, a second hour of "the pulse." clues from carney. david kern will be with us to weigh in with his thoughts. we will bring you the bank of england inflation report. the press conference that goes

along with that live and in full here on "the pulse." what will they say about wages, the growth trajectory and inflation? all that will be in focus. ♪

>> clues. it date of england presents and we will bring you the events live and in full. block the trucks approaching the ukraine. i aim the situation in the east. they say they are concerned about the crisis. this is on better-than-expected earnings. a welcome to the second hour of the program and good morning to

our viewers in europe. good morning to those waking up in the united states. this is the pulse from the european headquarters in london. .et's get to our top story mark carney releases the report the seller and they will be watching for any hints of a rate rise. we will be looking at data in the last hour. the wages have dropped for the first time since 2009 and it seems amazing that we're talking about those kind of statistics when it is as strong as it has been in recent quarters. >> yes. you look at the unemployment numbers and the unemployment sign ofoints to a weakness. as soon as the numbers drop, our colleague drops and send us an e-mail. people have first to a new record.

growth andn the wage it points to slack. andcan take a view on this the people in the building behind me will take a you. is the trend wage growth? ofthat changing complexion the labor market something we have to get used to. >> what are the things that we need to watch when we hear from governor carney. hehear wages and anything says about that will be key. what else? >> number one has to be how much slack his left and are they going to have a little bit of a copout. is the estimate going to remain this lame -- the same? is the labor market. data has been strong. the central bank. in this country, how do you

justify having emergency monetary policy measures? that is what we are seeing and here is the curveball. number three is russia and the ukraine. is biggest trading partner the eurozone. do you want to be tightening monetary policy? they say it is their job to look forward. let me let you know that they were trying to do that. they did not see the rate rises until then. than a different picture the central banks behind me. >> the political developments take pressure off of the bank of england. thank you very much. we will bring you the report live and in full in this hour. let's turn to the ukraine. is movinga convoy

towards the border. what happens when they hit the front? what is the latest about the trucks from when we were first talking about them. what do we know about where they are and what it contains? andhe convoy was on its way when the convoy comes, that is -- that is when things get interesting. city,e biggest ukrainian it was 70 kilometers and very close. the russians, when they announced the convoy, said the exact route with the convoy is going to travel and what border it is going to cross. they said that the whole thing had been coordinated with the ukraine. we are hearing from ukraine and

they say they are going to stop the convoy because they are not certain that it is only humanitarian. they think it might be military. the committee for the red cross has been part of coordinating this and they are starting to get cold feet. have a listen. contact with all of the parties. we need to know what is inside the convoy and the various materials that are going to be handed over. >> they listed it on the website and this could be a he said-she said situation. they are hurrying to get the a in the city.

it has been surrounded by troops .or two weeks now 10 the russians go to the border? what do the russians do? iny may wait and we will be this waiting game. not just politically speaking. >> indeed. we were talking and it was an interesting conversation about whether this would turn out to be a military activity or if it is in all of france. you can see you can see it play out in different ways depending on the case. thisey were worried about and the central bank says that there is a huge selloff and people buy things out of panic. they see it as a pretext for invasion. it is the worst performing

emerging market -- emerging market currencies. on a big winning streak ,ecause some equity investors and i think we are talking about a speculative crowd. say that it is the humanitarian aid. this will provoke a beginning to negotiations. leavere does this vladimir putin? him.d puts the focus on it is extraordinary that he arrives in crimea, as far as -- ian is concerned >> he is taking his cabinet and -- >> and his national security council.

what better place to do governing than in crimea? it is interesting that he is in crimea and they are trying to get into the next newest region. thing.e a binary or, maybe not. de-escalate is to the situation and come up with ,ome plans on humanitarian aid that gets his foot in the door and it is constructive. he is telling people to forget about crimea and it is the lesser of the two evils. maybe therepy and is a road to de-escalation. away, ukrainians turn it does that give him a reason to ?ay how cynical of them

>> thank you very much. this carefully. we have some concern. how will the standup up in russia and the west affect things? that is what we are discussing. >> currency. they have seen a lot of current because of come down the geopolitical situation. a lot of natural gas comes through the ukraine. aboutmight be a concern the situation. it does not seem to affect the stock this morning. that is after they announced

that the profits were down. profitsctation was that were going to be down 25%. it looks like a stock is enjoying a bit of a ride. they posted earnings. there is something to smile about this morning. >> there are concerns. and there isenues an energy chain. of her nobles and they want to get to 60%. power companies. there is a hit by economic activity. challenge for a company that is trying to diversify beyond the german borders. >> thank you very much for

reporting from berlin. the bank of england governor revealed hints of a rate rise. the reportng you live and in full in 19 minutes time.

>> welcome that.

let's look at currency markets and the pound against the dollar. you can see the results of the inflation report that is coming up and the wage data and unemployment data. the unemployment was expected by economists. and there was a surprise for some of the wage numbers. the average wages are down for the. -- for the time. weaker thanwere estimates and it was up 0.6%. that was below the positive 0.7%. that tells us where the bank of england will go on interest rates. let's talk to the chief economist. thank you very much for coming in. weaker wage data

place two-year base case. there is no need to hurry. >> no need to jump the gun. the inflationary pressures are low. over the past year, it put pressure on exporters and put downward pressure on inflation. hitting theis buffer and it cannot be substantiated. you look at the figure and there is a lot of inactivity. that something like 1.4 million people are working part-time because they cannot find a full-time job. it is a situation where will not substantiate the facts. .> how does it trend

is there a structural trend in the economy? >> some people are self-employed because they want to be. but it is a positive and a negative. >> quite a few are there because they cannot get a wage in a job. some of the self-employment is able to rejoin a more productive one. all of these things suggest that the economy is good. we are the fastest-growing economy over the past five years and our position is less flattering. we have reached a level of the previous. america were slower than us. point a yearat ago. we have to be the first economy

that puts up interest rates before they have to do so. >> there is a different view out there. the member was talking to my colleagues and saying that they are paid to look forward. toy wait for all of the data line up and they wait for the data to flash red. it will be too late. is the conversation worth having? it is. some people have argued for interest rates and there are always risks in economic decisions. at the moment, the risk of moving too fast is greater than the risk of waiting. not do ithat if we do immediately we will fall behind the curve, with the figures, it is hard to substantiate this. in spite of the ukraine and

iraq, the old market is very tame. >> what is the mindset at the moment? are they looking for reasons to keep rates the way they are? >> there are none of them. he would like to keep them as low as possible and some people are happy. hits success is a -- is the ability to make the decisions. we will have to see the last decision and i believe that he is on the side of business. a think he would like to not threaten the economy. i generally believe there is a conversation to be had about inflationary pressures accelerating. i do not think that they are right.

businesses do not want high inflation and we do not like i inflation. the risk of high inflation is smaller than the risk of moving too fast. it is good and it is fragile. >> do you think that it will change a few about when interest rates move up? >> i hope so. i think it is time. was expected to grow by almost 250. is a furtherit confirmation that there is a recovery and it is going ahead. do not do anything to put at risk. >> defined jumping the gun. defined jumping the gun. it thisarkets expect

year. there is no case. >> what is the biggest concern? what should be? should they look across the channel and that what is happening, worry about the big trading partner. and thinkingon about a rate rise. outside of the borders should be worrying them. waiting andints to the geopolitics is not comfortable. i think the ukraine and iraq are risks. usingro is talking about monetary policy. they are talking about moving the rate to negative and putting the recovery at risk in a situation that is not necessary. is a difficult job.

>> thank you for joining us from the chamber of commerce. mark carney is going to space -- speak and we will bring you the news conference as full as it begins. stay with us.

>> it is shark week and we have the latest deep-sea sharks. the daredevils got up close and personal with hungry tiger sharks and they were more interested in tunis ship -- snacks.na pro skaters battled it out for the top spot. watch them pull off impressive tricks. three activities that i have no experience in. certainly not swimming with sharks. not in a non-metaphoric sense. mark carney will release an inflation report. the economist joins us now and

we have more. thank you for joining us. let's remind ourselves what we saw the bank of england shift significantly. are turning the markets on their head a little bit. >> tricks and jumps. >> a bit like the skateboarder. he wants market rate expectations. you have 0.5 record interest what hence 2009 and wants is to introduce uncertainty into the mind of people borrowing money. >> it is about forward guidance. the issue tends to make people assume that that is what is going to happen. keynes said that if the facts change, i change my opinion. we have seen a dramatic shift. is there going to be anything to change the wage data?

>> you mentioned the eurozone and it is a big concern. disappearing and it will give them cause for thought. unemploymentll in and it is shrinking. you look at what the bank of england was expecting in the last inflation report and they were looking for a 2.5% wage increase. so, that will give them hesitation on where the outlook is. bear in mind that carney has this and the rates rose a bit. in 2012, he spoke about raising interest rates continuously and could not do it. you put the doubts into the minds of people making money. >> thank you. we look ahead to the inflation

report. the desk will be populated with members. kicks off,nference we will go to it. stay with us >> welcome back.

let's go straight to the bank of england press conference. there is the governor, mark carney preparing to speak this morning. details of the inflation report. some of the details coming through for you now. the members being introduced there. momentumned economic is looking more assured. robust broadly based growth over the past year has taken up above the precrisis peak. we have revised expectation for near-term growth and expect headline activity to grow --

slow little later than we previously have thought. unemployment has fallen sharply. it is now expected to drop below six percent by the end of the 5.5% for the end of the forecast time. a marked reduction relative to expectations in may. the mpc expects inflation to remain at or slightly below two percent before reaching the target at the end of the second quarter. as the economy normalizes, bankrate will need to start to rise inflation target. the mpc has no preset course. the path of bankrate bullocks -- depend on how the inflation exceeds and how the outlook evolves. this expansion faces some challenges. geopolitical risks have intensified and structural adjustment continues in the root -- euro area where growth is

expected to remain modest. financial conditions are expected to tighten as it progresses. will require growth in productivity and real incomes, both of which have disappointed. beenfar, output growth has more than matched by records of employment growth. more than 800,000 jobs have been added in the past year. total hours worked have risen more sharply and the participation rate has reached the highest level in almost a quarter century. all of the labor market signals tell us slack is being used up at a greater pace than we had anticipated. end of the not the story. a rain of other indicators indicate there was more slack in the first place. in particular, pay growth has been remarkably weak, even as unemployment has fallen rapidly.

seems there has been an increase in labor supply at a given rage weight especially among older groups. that represents not just that persistence of past trends, it might stem from recent reforms to retirement and benefit rolls and the need to service debts and provide for pensions. is, thesehe cause developments point to the economy being able to a higher level of employment and lower rates of unemployment without additional inflationary pressures. indeed, continued low wage growth is being able to expand despite the sharp increase. not surprisingly, there is a wide range of views about the midi -- on the committee about the view in the economy. in the best judgment, the degree of slack has narrowed somewhat in the central estimate is now broadly in the region of one

percent of gdp. of the heightened uncertainty about the current degree of slack tom at the committee will place particular importance on the perspective of thesh in light heightened uncertainty about the current degree of slack, the committee will place particular inference on the perspective cash. the committee's guidance remains unchanged. increases in bankrate when they come are likely to be gradual and limited. an expectation, not a promise. the clarity is helping businesses to plan, invest and higher to thwarting the minimum we see today that we will need tomorrow. the mpc expectations for gradual and limited rate increases are gruffly -- broadly shared by

markets. the path of bankrate's implied by market yields and on which the forecast is conditioned rises by only 15 basis points per quarter and reaches only two point 25% by the end of the forecast. raised expectations stem from the persistence of headwinds facing the economy. these headwinds includes -- include demand in the major export markets, which is being reinforced by the persistent strength of sterling, now 14% above the trough and last year. ongoing balance sheet repair in the public and private sectors. uncertainty about the sensitivity of the economy to changes in bankrate is another reason why god -- why gradual increases may be appropriate. smoltz is low increases could help mitigate the risk that trigger a smart -- sharp slowdown in domestic demand.

if spare capacity were to be eliminated at a stroke overnight, the appropriate level of bankrate would not be far from where it is today because of these headwinds. moreover, even when the headwinds have fully abated, the appropriate level of bankrate is likely to remain materially below the precrisis average for some time. that is because higher capital quiddity and other credential requirements will be expected to lead to higher spreads between darling rates in bankrate. the balancelevel between savings and investments that drove global long-term rates down before the crisis appears to be no smaller today than it was back then. to conclude, the economy is returning to resemblance of normality, and in many respects the future will be familiar.

the race against long-term unemployment is being won and unemployment can turn to the low crisis.en before the however, whether tomorrow's normal rate for growth and activity in incomes match those of the past rest ultimately on the extent to which conductivity growth picks up remains an open question. the mpc ist, committed to ensuring normality continues. we achieve that will reflect the new realities. interest rates can be expected to increase as the expansion progresses. forces acting on our economy, the normal interest rates of tomorrow are likely to be lower than those of yesteryear. with that, happy to answer your new questions. ben sheets from the

independent. the bank has always been relatively confident conductivity would bounce back quite profitably. isn't this quite a depressing message? what in your view is the reason it will not bounce back this year as you previously thought? >> you are absolutely right. we had expectations of productivity growth being stronger at this stage in the cycle and given the batter out turns in terms of activity, we anticipated that would show up in endogenous supplier of productivity growth. for various reasons it may take longer for productivity to come back.

we expect a slower return to growth. some of it is to do with the gradual hearing process and slower process of creative destruction. some of it could be due to mismanagement. none of those factors are individually satisfying but all relevant. we provide a bit of accounting in the report. i want to link it to the forecast, the important issue. have a slower return pickup and productivity. we do not get back to historic average rates by the end of the forecast issue as you indicate. that indicates product -- productivity shortfall. a couple of the calls about the supply side and the economy in this report. one is that there is more slack than we had previously thought.

higher rates of participation in the economy for various reasons. we also see a lower rate of unemployment, how fast the economy can run. so we have both of those to adjust. that is consistent with the labor supply shock to the economy. there is a process as the labor supply shock is absorbed that businesses have been hiring. the price of labor has not been moving up as you see with the wage data over the course of the past year. businesses have starts it to did labor for capital. labor foruted capital. eventually that will get absorbed, wages start to pick up, businesses invest more, productivity picks up in response to investment but just a slower process in part because

of the adjustment. i will finish with this, that the adjustment we have made on view on howde, our much spare capacity there is in the labor market is not something that suggest there is any structural break. it is something that has to do with the timing and terms of recovery. we do have a pickup and investment growth over the forecast. >> alex from "the daily mail." you referred in your remarks to daily political risks. i was wondering how great of risk the mpc sees that? we seem to be rising but by the day. and if that would have an influence on the long-term direction of interest rates for your attitude for raising

interest rates. >> let me say a comp look things , in terms of the forecast, we have a slight downside skewed to the growth forecast. i neglected to mention the 3.5 forecast for 2014 but it is in the report, which is slightly firmer then in may. that is the central extract haitian. there is some downside risk. most come from abroad. of globaltightening financial conditions but also as geopolitical tensions. theas not influenced policy. we have discussed and taken into account but has not determined the policy decision. some of these situations are evolving relatively rapidly. we have to look back to the channels of the u.k. economy whether they are through potentially higher commodity costs, potentially demand for exports.

and the premium globally. we have seen relatively little evidence. see thenly beginning to first advance sign of the middle. so i would say early days but something we have to monitor. and if it becomes important determinant, obviously we will talk more directly to it. >> simon jack him at bbc news. you said there is less slack in the economy you previously thought, down to one percent. baffling week. i was wondering if you will try to get ahead of the curve? you placed an emphasis on wages.

will you get ahead of the curve or wait until it shows up? what will be the trigger? >> two things. just to recap the views on slack. , slack has been used up more rapidly than previously expected. signal from the degree of participation in the economy, but also the degrees of transition of longer term and medium term unemployed to jobs and importantly from wage data as well. we took wage data from all of those factors to suggest the starting point for the degree of slack was previously thought. -- greater than we previously thought. we detailed those adjustments in the report. this leaves us with the best collective judgment, a slight narrowing. where i haveoint to say there is tremendous

uncertainty around the collective judgment. of one percent. there is a wide range of views. even a wide range of point views with the white dispersion of possible outcomes on the degree of slack in the labor market, so we will be learning as we go. we will update as we go. means we are not putting out a threshold. he would not expect us to have a single point threshold for weekly earnings, private sector public-sector that would unlock the moment when we adjusted rates. to look at the prospect for wage growth. that's been asked about and therefore unit labor costs and ultimately for inflation. now is not the time given the degree of slack, given the

weakness of laborers -- labor and given the start of the recovery of productivity. but over the forecast in that time, and are best viewed that time will come. would be an upward adjustment for interest rates so we will have to monitor the labor market very closely. >> larry elliott of the guardian. can i just pick out a couple of things you say in the overview, which is there is a wide range about the degree of slack that is more uncertainty about the health of the housing market in three months ago with wages that may go up but may not go up. you say the committee rate interest rises is in

expectations. one is that the bank does not have a clue what is going on in the mpc is divided about what is going on there and thirdly, any person thinking about taking out a mortgage or overdraft on the basis would be advised to do so because anything you say has to be taken with a very large pinch of salt. >> thank you, larry. let's take that in reverse order. the committee guidance is consistent, unchanged. the same guidance since february that we put in place the second phase of guidance. ,evelopment in this economy development and the global economy, financial markets have all been the consistent. consistent with that guidance.

expect call, view, patient and judgment but an important judgment. the judgment is about love -- the likely path of interest rates over the medium term that they can be expected to go up as progression extends. household making the decision about borrowing, that is relevant. relevant interest rates will be higher, that interest rates will be in expectation. there he relevant for businesses. i recommend you go and talk to a wide range of businesses about whether that is useful information for them in terms of their adjustment, investment and hiring decisions. i find it is quite useful. not a guarantee. alex rightly asks about

geopolitical events. there are events and things that can happen. there are situations we could have to respond to in order to meet the mandate, two percent inflation target. thebrought thrust of guidance is there in the committee is behind it. in terms of the adjustment about when to raise interest rates and the role that developments in the labor market and productivity play in that, there is a lot of uncertainty. there has been record job growth. record participation in the economy. a relatively unprecedented weakness in wages, certainly given those other performance metrics. reasonable people will take different judgments.

particularly as the degree of slack as big is -- as it has been has been used up. that is what you would expect from a committee. there is nothing more to say except i think it is attempting want but a forced dichotomy. to say you aren't either sweetly certain of everything or you are clueless. but there arein substantial reasons for giving guidance about future interest rates we have an wow i cannot be completely precise or make the guidance unconditionally, there are some reasons for saying what we have said. veryonted with the contrasting signals in the labor market. and of course blending them will give you a slightly more uncertain outcome. thing asot the same

saying we are clueless. >> chris with itb news. the many are feeling tremendous anxiety with the prospect of a rate rise at the moment. alongside that is the real wage situation in many of those homes. this morning new figures indicating the average salary has actually went down. in your report today you are talking about some signs new recruits are getting better wage settlements. is there a danger you will be setting policy here toward the lucky workers who are in sought after processions -- professions in key areas leaving aside the most -- the vast majority who concessions. >> this is something we are very attuned to and i referenced in my opening remarks about the

sensitivity of the economy to interest-rate increases and particularly given household finances, the debt overhang, need to rebuild tensions and concerns about that. we conduct a survey of households and quote in the -- actuallyaround the majority of households would in the absence of wage increases or would haveies to take significant expenditure adjustments it there were a two in that.e increase that is in the absence of wage increases. there is the wage sensitivity that is there that exists and we do take it into account. one of the reasons why one would expect interest-rate increases once they begin to move gradually. question, isfic there a danger of us targeting

policy to in your words the lucky few or specific sectors? know. we make monetary policy for the economy as a whole. we look at broad range inflationary pressures. i will finish by saying we will do two things. we are looking at respective wages. we are very conscious about the debt issue and sensitivity to interest-rate increases. lastly, our contribution in terms of real earnings come at the ultimate contribution is to deliver two percent inflation target. we will remain resolutely focused in doing that and timely fashion. catherine oken form -- from "the times." there have been conflicts that borrowing mayon

not dampen the market as people originally thought. do you think we -- do you think you will have to take further signs in the future if there are signs of a overheating housing market? >> these are the mortgage market review rules you are referring to. let me say what the mpc perspective on those has been. on balance we viewed that the implementation of the rules slowing in theby housing market, housing market activity, fewer mortgage approvals and transactions than would have otherwise been the case and largely a transitional because of the impact on lending capacity of building and activity. effectively a transaction. there were some early signs that

transition process is nearing its end. said we have lowered overall our expectations for the number of approvals and number of transactions for the year. i am a bit loath to drift into sec territory, except to say the view of the implications of the consistents entirely with the mpc view that they were largely transitional, that they enhanced underwriting in the market but not viewed as something that would permanently slow activity going forward, which is going to be higher-quality. carney, i think 90% have released a report thinking there is no wage growth, no hike anytime soon but you are always looking for growth. looking for three point five

percent growth this year. how do you reconcile the growth with record low interest rates, and is there a risk that there is putting too much emphasis on a 25 basis points rise in rate and not the absolute level? what are your thoughts? of things. you are the one putting tremendous emphasis on one move in rates. that is the great opus, when is the bank going to move the first time? >> the bank of england governor mark carney ruth -- releasing the inflation report. he says rates will have to rise as the economy normalizes. cutting the annual wage growth to 1.25% versus the previous forecast of 2.5%. that has certainly had an impact on some of the markets, notably sterling. rates will have to rise but the right -- but the rate will be gradual.

he did mention structural adjustments. u.s.,e viewers in the asia, and australia, " next.llance" is up european viewers, let's get back to the press conference. ♪

>> this is bloomberg "surveillance." the u.s. will send 170 advisors to iraq.

the obama administration is adamant about a no troops on the ground strategy. markets remain impervious to the summers geopolitics. we speak to a cautious all. millenial's go in search of a normal economy. the millenial's are still searching. good morning, everyone. this is bloomberg "surveillan ce." it is wednesday, august 13. i am tom keene. joining me is adam johnson and olivia sterns. going to the morning brief. >> nothing reads about this. starting with signs of we -- weakness across a jeff. drops. gdp -- weakness across europe. contraction since the tsunami. >> half of america. >>