After the whirl wind of Trump chaos in April, May has been far more settled, thankfully!
The Bank of England cut rates by 0.25% at the beginning of May as expected. The headline news really came in the form of the rate setting committee, which narrowly voted 5-4 in favour of cutting borrowing costs by a smaller amount. Two Monetary committee members, Swati Dhingra and Alan Taylor, actually voted for a bigger 0.5% cut, whilst the bank’s Chief Economist, Huw Pill, and Catherine Mann wanted to keep rates on hold.
President Trump said he would scrap 25% tariffs on imports of British steel and lower tariffs on domestically manufactured cars from 27.5% to 10%, the rate which will remain for most other goods imports. As a result, the US effective tariff rate on the UK will fall from 13% to around 11%, still much higher than the 1% rate prior to the much touted “Liberation Day” that rocked markets during early April. In exchange, the US will receive reduced tariffs on beef, machinery and ethanol from the UK, along with faster customs processing.
There was good news for the UK economy as the 1st quarter figures accelerated by 0.7%, up sharply from an increase of 0.1% in the last three months of 2024 and ahead of the 0.6% predicted. On a monthly basis, in March alone, the economy grew unexpectedly, expanding by 0.2% from February and whilst undeniably strong, it seems the view that it won’t last is hardly an edgy one. The Bank of England have already commented that it expects the strong growth to prove only temporary with output likely to expand by 1% this year, accelerating only slightly to 1.5% in 2026.
In contrast to the UK, US GDP figures revealed that is contracted by -0.2% for the first quarter of 2025 as softer government spending was offset by resilient consumer spending. This is before Liberation Day when Trump brought in a raft of global tariffs which caused significant turmoil in global stock markets. It is anticipated that the US could contract more with the effect of the tariffs (albeit reduced for 90 days) take effect.
At the end of May, a panel of 3 judges on the US Court of International Trade found all tariffs to be unlawful and permanently “vacated them”, as Trump had used an emergency power which was found to be unlawful. However, the decision was appealed, and the court has now ruled that the tariffs, as they are, can stay in place for now, until the case can be litigated.
Whilst not a huge surprise, UK inflation rose significantly to 3.5% for April up from 2.6% in March, the highest reading since January 2024. This was mostly down to a Tsunami of price increases in energy and water, there was a 26.1% increase in water and sewage charges, the highest increase since 1988. Also, airfares jumped unexpectantly by 16.2%, with gas prices rising by 12.2%. Inflation is expected to drop back in the coming months with energy prices in particular falling sharply in July.
Overall global markets have rebounded well since “Liberation Day” which sent the values of companies into a dramatic downward spiral, with trillions of dollars being wiped off global stock markets within short order.
The path forward will likely be paved with more volatility, as well as dispersion across sectors and geographies as global economies absorb the shocks of the US trade policies.
No one can predict the results of countless bilateral tariff negotiations and whilst markets are likely to remain unpredictable as ever, there are still bright spots in equities with the outlook remaining in positive territory at the moment.