How much does that picture in the Middle East matter? I mean, how different are the forecasts depending on what you assume about when and if the war stops?

I mean, drastically different.

And actually the volatility in those kind of energy prices on financial markets, which are driven by the kind of conflict in the Middle East, is really dramatic.

So even as we're recording this, over the last week, we've seen, you know, 10, 20% swings in oil prices and gas prices.

And that feeds through in quite a big way into the outlook for household energy bills, for pump prices.

And so it will just hit inflation.

We think you're probably going to see inflation now, even if we got a resolution to the conflict tomorrow, which may happen.

Jack are you as optimistic as Jonathan?

It's hard for people to get their heads around, isn't it? That in order to fight rising prices, people's costs have to go up.

Yeah, it is a difficult kind of way to frame in terms of people's minds.

But it is the actual blunt mechanism that monetary policy has to work through is in order to be able to bring prices or price growth and inflation down to where it's required to in the medium term.

The bank does sometimes have to squash demand in the economy a little bit more.

And that's what higher interest rates do.

They do weigh on people's ability to spend.

It does weigh on businesses' ability to invest.

Jack, for someone listening to this on their way to work this morning, what would another rate rise today actually mean for them? What kind of impact are they likely to see as a result?

I mean, there seems to be lots of calls at different points in the report, Jack, for realism, for honesty, for telling people straight?

Yeah, I mean, I think this inflation shock from the Middle East, it presents a set of choices.

And, you know, probably the most pertinent of all of those is the extra inflation eats away at the Chancellor's kind of spending plans, which means if you wanted to keep in real terms adjusting for inflation, The same amount of spending going forwards, he'd need probably at least another 15 billion pounds just to keep things as they were before the shock hit.

Now, he's got a choice.

He can either choose to just let inflation determine where that goes, keep the spending plans the same in cash, which will mean that he'll be able to deliver less in terms of quality and quantity of the things we want like the NHS, like public services.

Or he can choose to go out and say, well, we're going to top up that money in cash terms.

We're going to try and keep the quality and quantity of the services the same.

And you don't think that those look clear to you from what we've heard from John Healey so far, you know, in the few months that he's been Chancellor?

What stood out as the most interesting thing you uncovered in that process?

Well, Patrick, I think the thing that surprised me most was when we brought together, you know, our macro expertise and how we assess the backdrop with the fiscal expertise of the IFS.

Actually, the combination of those two things, which, you know, we're really privileged to be able to have, really gave me a challenge to the market narrative that the Chancellor is gonna find himself really squeezed on headroom at this budget.

And the reason for that was because I think the market has been focused on the increase in interest rates and yields, which absolutely will take away from the Chancellor's capacity to, to spend and, and tighten up the fiscal picture.

But when you kinda marry that with actually what's going on with inflation and nominal tax bases, which is where we could draw on the IFS, you find that actually those two things marry out pretty neutrally.

And so the Chancellor may ultimately have headroom that is broadly where he was back in the spring, and therefore that means that this narrative that he'll have to do quite a lot of fiscal tightening just to keep the show on the road is maybe misplaced.

And actually, it could be that he doesn't have to make big changes at this budget just to keep the right side of his fiscal rules.

What's your view on that?

Do you see any similar either lack of or increase of investment going on in the UK that might help prop up the UK economy?

Well, OK, let's start with kind of how this is all going to feed into the Bank of England, because I think you're right.

When you look at the moves we've seen in UK curves over the last few weeks, you know, to the extent that they've been driven by kind of repricing, it seems to have been repricing driven by expectations for the Bank of England and a front end move.

So we're now pricing somewhere between two and three hypes.

over the next 12 months or so in the UK market.

And that is really what has been driving, rather than some form of term premium, what's been driving the move in the UK market.

Now, why is that? Well, the market is taking a view that actually with inflation going back above 3%, the Bank of England is going to have to do something to respond to that.

Is it, is there a realistic path to a more sustainable deficit levels in the UK? Or is that probably out of the question without, you know, some major changes to government spending and or even higher taxes?

Do you see any similar either lack of or increase of investment going on in the UK that might help prop up the UK economy?

Well, OK, let's start with kind of how this is all going to feed into the Bank of England, because I think you're right.

When you look at the moves we've seen in UK curves over the last few weeks, you know, to the extent that they've been driven by kind of repricing, it seems to have been repricing driven by expectations for the Bank of England and a front end move.

So we're now pricing somewhere between two and three hypes.

over the next 12 months or so in the UK market.

And that is really what has been driving, rather than some form of term premium, what's been driving the move in the UK market.

Now, why is that? Well, the market is taking a view that actually with inflation going back above 3%, the Bank of England is going to have to do something to respond to that.

Is it, is there a realistic path to a more sustainable deficit levels in the UK? Or is that probably out of the question without, you know, some major changes to government spending and or even higher taxes?

Is there economic evidence that this kind of decentralisation delivers better economic outcomes?

First of all, Patrick, let's just look at the context of just how centralised the UK is.

You can look across a whole range of metrics.

They all tell you broadly the same story.

The UK is one of, if not the most centralised economy economically and fiscally across most of the developed economic markets.

For a specific number, let's say, if you look at the share of total taxation that comes from local sources rather than national sources, The UK, that's around about 5%.

That's the lowest in the G7.

Are there any that investors should be keeping a close eye on over the next weeks and months?