US Trade Policy Uncertainty and UK Economic Outlook: Market Talk

US Trade Policy and Global Uncertainty

• 🌍 Markets experienced relief as President Trump appeared to retract the threat of new tariffs on European countries regarding Greenland.
• 📌 Despite the postponement of a 10% tariff on UK and European imports, the uncertainty surrounding US trade policy remains a significant issue for Europe and the UK.
• 💡 Trade deals made last summer aimed to reduce uncertainty for companies, but this has been disrupted, suggesting the trade story may not be over.

UK Economic Data and Employment

• 📊 This week presented a mixed economic picture for the UK, with higher inflation and lower employment.
• 📉 Private sector hiring has seen a gradual decline throughout 2025, concentrated in hospitality and sectors affected by previous tax policy changes.
• ✅ Currently, there is no significant spike in redundancies, indicating the weakness is more due to attrition than a severe crisis.

Factors Influencing UK Hiring and Growth

• 📈 Weak hiring is partly attributed to the legacy of last year's tax hikes and a significant increase in the national living wage.
• 🌐 The global economic environment is also contributing to the impact on the UK's hiring landscape.
• 🚀 An upside risk for the UK is the Bank of England's rate cuts, which could eventually boost growth if they begin to impact household and business balance sheets.

Bank of England's Inflation Outlook

• 🔍 The Bank of England is unlikely to be overly concerned by slightly higher-than-expected inflation numbers, as there is noise beneath the surface, such as a pick-up in food inflation that is still below previous expectations.
• 📉 Fears of persistent inflation due to rising food prices now appear overblown, with inflation expected to drop dramatically, potentially falling below 2% by April.

Bank of England Rate Cut Projections

• 🗓️ Two more interest rate cuts are expected from the Bank of England, possibly in March and June.
• 📉 These cuts are anticipated as jobs and wage figures are expected to remain weak, with private sector wage growth projected to drop significantly.
• 🔑 If headline inflation continues its expected decline, further rate cuts in the coming months are likely.