UK markets regained some ground after a volatile week, but still ended in negative territory, with the FTSE 100 Index falling 2.25% to trade at 7,885 points at the time of writing.
Equities remained under pressure following Donald Trump’s tariff proposals announced last week but rallied on Thursday, after he announced a 90-day pause in additional tariffs on countries that were willing to negotiate with the US.
Bank of England officials warned earlier this week that “the probability of adverse events” has risen and the UK’s open economy is particularly exposed to the financial market turmoil stemming from the US President’s trade war. Sir Kier Starmer has shifted his focus in US trade talks to cutting the 25% tariff on British cars after admitting he did not know if he could persuade Donald Trump to scrap his new 10% tariff on all British imports.
The UK-US economic partnership that the Prime Minister has been seeking has yet to materialise and Trump insisted last week that Kier Starmer was “very happy” with the 10% levy he imposed on imports from Britain. Trump has imposed a 25% global tariff on imported cars, which will significantly affect the UK auto sector. Cars are the biggest single UK export item to the US, accounting for sales worth £6.4 billion. The UK economy grew 0.5% in February, beating analysts’ expectations and providing some positive relief from the impact of tariffs.
The GDP figure released by the Office for National Statistics on Friday was above both the 0.1% increased forecast by economists polled by Reuters and January’s figure of zero growth, revised up from a previous estimate of a 0.1% contraction.
Growth was widespread across services and manufacturing, and marked the fastest monthly pace since March 2024. Separate data from the Office for National Statistics published on Friday showed that exports of goods to the US, including precious metals, increased by £500 million in February 2025, marking the third consecutive increase. They are at the highest level since November 2022, suggesting businesses are trying to anticipate the incoming US import tariffs.
Elsewhere, Barclays has become the first major UK lender to cut its mortgage rates in response to changing interest rate expectations in response to volatile tariffs. The UK bank cut its mortgage rates below the symbolic 4% threshold to 3.99% on two-year fixed, three-year fixed and five-year fixed mortgages with a deposit of at least 40%. Investors are now expecting that the Bank of England will cut interest rates in May, and then lower borrowing costs twice more before the end of the year.
Commodity markets
In the commodity markets, Brent crude futures traded around $63 per barrel on Friday and are set to fall for a second week as the trade war between China and the US continues to escalate despite President Donald Trump announcing a 90-day pause on tariffs aimed at other countries.
A prolonged trade dispute between the US and China is likely to reduce global trade volumes, disrupt trade routes, and eventually weigh on global economic growth, which will likely impact crude consumption. The US Energy Information Administration lowered its global economic growth forecasts on Thursday and warned that tariffs could weigh heavily on prices, as it slashed its US and global oil demand forecasts for this year and next.
Gold prices traded around $3,220 an ounce on Friday, hitting record highs, fuelled by a weaker dollar and an escalating trade war that sent investors rushing toward safe haven assets.
Equity markets
US equity futures fell on Friday after a turbulent week dominated by sharp market swings amid ongoing trade uncertainty. In Thursday’s regular trading session, the Dow Jones Industrial Average dropped 2.50%, the S&P 500 declined 3.46%, whilst the Nasdaq Composite sank 4.31%.
Donald Trump stunned global investors on Wednesday when he announced a 90-day pause in additional tariffs on countries that were willing to negotiate with the US, sending stocks surging as the President backed down from a full blown trade war.
Wednesday was the S&P 500 index’s best day since 2008 and the strongest for the Nasdaq since 2001. However, the US President singled out China for additional tariffs, increasing US levies to 145% and deepening his stand-off with the world’s second largest economy.
A 10% levy on most US imports from around the world also remains in force. China hit back on Friday, saying it would increase additional tariffs on US goods to at least 125%. China’s finance ministry said the increase from current additional levels of 84% would take effect from April 12th, signalling that President Xi Jinping will not back down from the escalating trade war. Trump’s backdown on tariffs came after a week of turmoil in global markets, with trillions of dollars shed in equities around the world. US government debt, a bedrock of the global financial system, also sold off sharply but eased following Trump’s U-turn and a Treasury auction that signalled robust international demand.
Chinese exporters have responded to the crushing US tariffs by hiking prices, cancelling shipments and rerouting goods to other countries, as the world’s two biggest economies brace for an economic fallout. Chinese sellers on ecommerce platforms are raising prices by up to 70% on US consumers, while others are preparing to exit the US market as punitive tariffs make trade unsustainable. Shipping companies said transpacific orders were being cancelled and they expected growing disruption in the coming weeks. There are also signs of cancellations in the other direction, where trade is now vulnerable to Beijing’s retaliatory tariffs on imports from the US which exports agricultural products, machinery and other goods to China.
US consumer price inflation fell more than expected to 2.4% in March, according to figures from the Bureau of Labor Statistics, which was well below February’s reading of 2.8% and the 2.5% forecast by economists polled by Bloomberg. The data also showed that annual core inflation rose 2.8%, less than February’s reading of 3.1% and below economists’ expectations of 3%. The Federal Reserve, which targets 2% inflation and maximum employment now faces a dilemma over whether to cut interest rates to prevent a possible slowdown triggered by Trump’s sweeping tariffs on US trading partners or hold them higher to pre-empt a resurgence of inflation.
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