Major equity markets gained early in the week before paring gains after Donald Trump introduced a blanket tariff of 25% on all car imports into the US. Countries around the world are now braced for Mr Trump's so-called "Liberation Day" next week when reciprocal tariffs will be introduced against trading partners worldwide. There were hopes earlier in the week that the White House would soften its stance on reciprocal tariffs, but following the car tariff news, the uncertainty is palpable.
Chancellor Rachel Reeves delivered her Spring Statement before the car tariff announcement, in which she had to announce a series of spending cuts as the UK outlook had deteriorated since her tax-raising budget in October 2024. The tariff news may put the downgraded forecasts at risk.
In UK equities, the FTSE 100 was up 0.1% over the week by mid-session on Friday, with the more UK-focused FTSE 250 down 0.2%.
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Spring Statement
Chancellor Rachel Reeves delivered her Spring Statement to the House of Commons, which contained no increases in taxation for individuals or businesses. Billed as a spending review, the Chancellor stuck to her promise of delivering one fiscal event per year, with the next budget to be held in October 2025. However, the statement was noteworthy for markets in terms of the UK’s growth and inflation outlook, which will impact the valuations of companies that generate domestic earnings. It also determines the amount that can be spent to boost economic growth, one of the central policies of the current government. Ms Reeves stuck by her “non-negotiable” fiscal rules, which are intended to reassure markets that government finances are being effectively managed. The updated forecasts from the independent Office for Budget Responsibility (OBR) have estimated that these rules will be breached during this parliament should no spending cuts be made. The OBR slashed its UK gross domestic product (GDP) growth forecast in half from 2% to 1% for 2025, while increasing its inflation forecast to 3.2%. This has eroded the government's fiscal headroom and means that the central government policy of boosting growth is facing a serious challenge. However, the OBR upgraded its growth forecasts for the following three years.
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The US and UK are two trade deficit countries with different strategies. As Donald Trump’s trade war escalates, we assess the contrasting approaches.
Geopolitics
Early in the week US President Donald Trump appeared to soften his stance on so-called “reciprocal” tariffs, due to be unveiled on 2 April. According to reports from The Wall Street Journal and Bloomberg, the administration is considering a scaled-back version of its reciprocal tariffs, which would impose matching tariff rates on every good?? from every country that has a tariff on the US. In the revised plan, it was reported that Mr Trump will target roughly 15% of nations that have the largest trade imbalances with the US. Treasury Secretary Scott Bessent is said to have named this group of countries the “dirty 15.” However, on Wednesday, the president surprised markets by announcing new import taxes of 25% on cars and car parts coming into the country. “What we’re going to be doing is a 25% tariff for all cars that are not made in the United States,” Mr Trump said in the Oval Office. “We start off with a 2.5% base, which is what we’re at, and go to 25%.” The announcement drew swift condemnation from the European Union and from the Canadian prime minister, Mark Carney, who called it a “direct attack” on Canadian workers.
British carmakers will reportedly meet ministers on Friday to discuss their response to the US tariffs on car imports. The UK government is trying to negotiate exemptions from a wide range of US import levies due to come into force at midnight on 3 April. Some car companies believe it is now too late to delay the measure and instead want to start discussing support options, the reports suggested.
British Steel is launching a consultation that could see the closure of its two blast furnaces at Scunthorpe, putting up to 2,700 jobs at risk out of a workforce of 3,500. The company said the blast furnaces were "no longer financially sustainable" due to tough market conditions, the imposition of tariffs and higher environmental costs.
UK taxes on big tech companies may be changed as part of a deal to avoid US President Donald Trump's next raft of tariffs.
President Trump may have handed an olive branch to China after saying he may cut tariffs on Chinese goods to help seal a deal for short video app TikTok to be sold by its owner ByteDance. Mr Trump also said he is willing to extend a 5 April deadline for a non-Chinese buyer of the platform to be found. In January, he delayed the implementation of a law passed under the Biden administration to ban TikTok, citing national security grounds for the “sell-or-be-banned” order.
The US president also threatened to impose tariffs of 25% on US imports from countries that purchase oil from Venezuela. Mr Trump said this "secondary tariff" would punish the Latin American country "for numerous reasons", including allegedly "purposefully" sending gang members to the US.
UK taxes on big tech companies may be changed as part of a deal to avoid US President Donald Trump's next raft of tariffs, Chancellor Rachel Reeves suggested. She said talks were ongoing about tweaks to the Digital Services Tax (DST), which affects global tech giants like Amazon and Alphabet. The 2% levy was introduced in 2020.
Ukrainian President Volodymyr Zelensky has said he hopes the US will "stand strong" in the face of Russian demands to lift sanctions as a condition for a ceasefire in the Black Sea. Moscow said a maritime truce announced on Tuesday to allow safe passage for commercial vessels would only begin once Western restrictions on Russia's food and fertiliser trade had been lifted. French President Emmanuel Macron also hosted 31 world leaders at the Elysee Palace for “coalition of the willing” talks to discuss the road towards a ceasefire in Russia’s war in Ukraine.
Economics
UK inflation fell by more than expected in February, driven by a drop in clothing and shoe prices due to an unusually high number of sales. However, retailer Next (see below) managed to get away with a lower-than-expected level of discounting. Inflation decreased to 2.8%, down from a rate of 3% in January, according to the Office for National Statistics (ONS). Grant Fitzner, chief economist at the ONS, said women's clothing "was the biggest driver for this month's fall". "This was only partially offset by small increases, for example, from alcoholic drinks", he added. Economists polled by Reuters had expected that would dip to 2.9% in February. However, next month’s price rises in water and energy bills as well as the increase in employee National Insurance contributions means inflation is expected to rise above 3% for the rest of the year. Nevertheless, markets still expect the Bank of England to cut interest rates in May.
Output growth in the UK private sector hit a six-month high in March, boosted by a rebound in the services sector. The S&P Global flash UK PMI composite output index rose to 52.0 from 50.5 in February, coming in above the 50.0 mark that separates contraction from expansion for the seventeenth month in a row. This marked the highest reading since September 2024. The survey revealed the fastest upturn in the service economy since August 2024, with growth in the sector boosted by renewed improvements in both domestic and overseas sales.
UK retail sales jumped in February amid a sharp rise in selling from department stores, hardware shops and clothes outlets. While food sales fell back slightly, a jump in business across most other categories pushed overall retail volumes up 1% month-on-month. The figure was well above a 0.4% contraction predicted by the market, but slightly behind the 1.4% rise in January.
Confidence in Britain’s food and drink manufacturers is slumping, as inflationary pressures including energy, National Insurance and raw material costs gain pace, according to a survey by industry body the Food and Drink Federation (FDF). Business confidence plummeted to -47% in the final three months of last year, down from -6% in the previous quarter, as companies in the sector prepared to be hit by measures announced in the October budget. The confidence score has slid to its lowest level since the final quarter of 2022, when inflation was surging after Russia’s invasion of Ukraine earlier in the year.
Federal Reserve Bank of St Louis President Alberto Musalem said it’s not clear any inflationary impact from tariffs will prove temporary, and he cautioned that secondary effects could prompt officials to hold interest rates steady for longer. Mr Musalem said there is a greater risk inflation could stall above the Fed’s 2% goal or move higher because of changes to tariffs and other factors, reiterating it’s vital for inflation expectations to remain stable.
Chicago Federal Reserve Bank President Austan Goolsbee said he expected interest rates to be "a fair bit lower" in 12-18 months but added that it may take longer than anticipated for the next cut because of economic uncertainty. He warned that inflation expectations could become a self-fulfilling prophecy if markets start factoring them into forecasts, despite inflation having worked downward toward the 2% target.
Energy
The International Energy Agency (IEA) released its annual Global Energy Review. It noted that demand in advanced economies is rising again after years of declines, with rapid growth of electricity worldwide driving up consumption of renewables, gas, coal and nuclear global energy demand growing at a faster-than-average pace in 2024 as the consumption of electricity rose around the world – with increased supply of renewables and natural gas covering most additional energy needs. Energy demand rose by 2.2% last year – lower than GDP growth of 3.2% but considerably faster than the average annual demand increase of 1.3% between 2013 and 2023. Emerging and developing economies accounted for over 80% of the increase in global energy demand in 2024. This was despite slower growth in China, where energy consumption rose by less than 3%, half its 2023 rate. (read the full report here.)
Companies
Shares in energy giant Shell rose after it updated the city on its strategy. Management said it was targeting 4-5% annual sales growth in liquefied natural gas (LNG) in the next five years and will increase its shareholder distribution policy, focusing on share buybacks. It also cut its capital spending plans.
Full-year profits and earnings at Next came in slightly ahead of company guidance. It also appears the new year has stated better than hoped, with the retailer relying less on discounting than expected. As a result, management upgraded its guidance for full-price sales in the first half to +6.5% from +3.5%, its pre-tax profit guidance was increased slightly and earnings this year are expected to rise 8.5%. The company is focusing on international expansion and development of Next brand products.
Shares in DIY group Kingfisher slumped after management guided to little earnings growth this year and warned of the impact of budgetary measures in the UK and France on consumer sentiment and costs in the short term. The B&Q and Screwfix owner posted a 7% fall in pre-tax profit to £528m and announced a £300m share buyback.
Chinese electric vehicle (EV) maker BYD has reported 2024 revenue that beat rival Tesla. Revenues at the Shenzhen-based company rose 29% to 777 billion yuan ($107bn), boosted by sales of its hybrid vehicles. This was ahead of the $97.7bn reported by Elon Musk's Tesla. BYD has also just launched a lower-priced car to rival Tesla's Model 3. The news came as Tesla faces a backlash around the world over Mr Musk's ties to President Trump.
House builder Vistry reported a slump in profits after a “disappointing” year amid abandoned projects and cost overruns that forced it to suspend its dividend. The company issued three profit warnings last year and halved its operating division in a restructuring following the cost overruns. Pre-tax profit for 2024 fell 64% to £105.5m despite a 7% rise in completions. Vistry added that its forward order book totalled £4.4bn in the year to date, compared with £4.6bn last year.
Smiths Group posted a 9.5% jump in first-half operating profit. The global engineering group has been under pressure to consider a move to list on the New York stock market. US activist investor Engine Capital has been urging that as one possible way to maximise shareholder value. Management noted that “strategic actions to unlock significant value were announced in January,” adding that “separation processes for Smiths Interconnect and Smiths Detection” were underway. Those divisions are involved in electronic component supplies and airport baggage screening.
WH Smith said it has sold its UK High Street business to Modella Capital for £76m on a cash and debt-free basis. The retailer, which will now focus on its travel outlets, said it expected net cash proceeds of around £25m when adjusted for transaction and separation costs. The deal did not include the funkypigeon.com personalised online greeting card business where strategic options were now being considered, including a possible sale.
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Trump’s car tariffs roil markets
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