Trade tariffs of 10% on UK exports to America announced by US President Donald Trump last night has lifted market bets on a rate cut in May to fight off chances of a recession.
Trump hit countries across the world with tariffs last night in what he called “liberation day” in reaction to what he sees as imbalances in global trade.
They range from 53% on China, 20% on the European Union and South Korea, and a 10% baseline on all nations, which could wipe billions off economic growth.
In the UK, the FTSE 100 fell 1% to 8,518.72 in early trading, while money markets priced in a 77% chance of the Bank of England cutting the base rate, currently at 4.5%, on 8 May at the next Monetary Polic Committee meeting.
The committee has made three quarter-point cuts since August.
Quilter investment strategist Lindsay James says: “For the UK, facing a 10% tariff, it has perhaps got off more lightly compared to other countries and the European Union.
“But this is still significant and will hit industries hard, particularly given the likes of car manufacturers face an even harsher rate. Whether or not this latest round of tariffs is additional to those already announced remains uncertain, as does the extent of any opportunity to negotiate.”
James adds: “Ultimately, Trump is playing a high-risk game. He is risking stoking a fresh inflationary spiral in the hope that over time jobs and industry are restored to the US.”
But despite markets pricing in rate cuts for central banks around the world, some traders argue this could lead national banks pausing for breath.
AJ Bell investment analyst Dan Coatsworth says: “There is a strong chance that we see a pause in the current rate-cutting cycle, particularly in the US and Europe.
“Central banks will be worried about rising inflation and that means rates could stay higher for longer.”
Coatsworth adds: “A pause in rate cuts is bad news for companies and consumers who are under financial pressure and struggling to pay off their debts.
“It is also bad news for anyone looking to get on the housing ladder and hoping mortgage rates would come down soon.”
Prime Minister Keir Starmer says: “Last night the President of the United States acted for his country, and that is his mandate.
“Today, I will act in Britain’s interests with mine.”
“Clearly, there will be an economic impact from the decisions the US has taken, both here and globally.
“But I want to be crystal clear: we are prepared, indeed one of the great strengths of this nation is our ability to keep a cool head.”
