UK markets pulled back this week with the FTSE 100 Index falling 0.94% to trade at 8,570 points at the time of writing. The UK economy unexpectedly contracted by 0.1% in January, figures from the Office for National Statistics showed, which was well below the 0.1% growth predicted by economists in a Reuters poll and December’s 0.4% expansion.
The decline was largely driven by weakness in the manufacturing sector. UK retail sales increased at an annual rate of 1.1% in February, below the 2.4% average of the previous three months and failed to keep pace with inflation as bad weather and cautious consumers hit spending, according to figures from the British Retail Consortium.
Non-food sales registered zero growth in February compared with the same month in 2024, below the 2.5% average annual growth in the previous three months. This indicates that consumers continued to cut the volume of goods they purchased as they have done throughout the cost of living crisis. The British Retail Consortium data echoes figures from Barclays, which on Tuesday reported that consumer spending rose at an annual rate of 1% last month, down from 1.9% in January and also well below the 3% rate of inflation.
Spending on electronics bucked the trend with growth of 6.7% in February, however most other categories, including supermarkets, sports and outdoor and bars and pubs reported outright contractions. The data adds to evidence that low consumer confidence and concerns about the labour market are hitting household spending and economic growth. This is despite official figures showing that wages have outpaced inflation since mid-2023.
US President Donald Trump dragged the UK into his global trade war this week, after imposing 25% tariffs on worldwide steel and aluminium imports.
Prime Minister Sir Keir Starmer has said he is “disappointed” that the US has imposed tariffs on British steel and aluminium imports, but stopped short of following the European Union in announcing retaliatory measures. Instead, Starmer said he would take a “pragmatic approach”, attempting to strike an economic deal with Trump, which he believes could shelter Britain from future levies.
Trade body, UK Steel warned that the tariffs couldn’t have come at a worse time as the industry battles high energy costs and sluggish demand. Exports to the US from the UK accounted for 7% of total UK exports last year by volume but 9% by value and were worth more than £400 million.
Commodity markets
In the commodity markets, Brent crude futures traded around $70 per barrel on Friday and are set to end the week little changed, as markets weighed macroeconomic concerns and demand versus supply expectations. Donald Trump’s focus on tariffs has rattled investors, consumers and business confidence, and raised US recession fears.
With the US President’s stated commitment to cheaper oil, analysts from Citi Investment Bank said the outlook for Brent by the end of the second half of 2025 is $60 a barrel. Global oil supply could exceed demand by around 600,000 barrels per day this year, the International Energy Agency said on Thursday, revising down its 2025 demand growth forecast.
Meanwhile, the Organisation of the Petroleum Exporting Countries said on Wednesday that Kazakhstan led a sizeable jump in February crude output by the wider OPEC+, highlighting a challenge for the producer group in enforcing adherence to agreed output targets, even as it intends to unwind production cuts.
Gold prices traded around $2,995 an ounce on Friday, hitting record highs, as elevated tariff uncertainty and bets on monetary policy easing by the Federal Reserve kept bullion’s appeal strong.
Equity markets
US equity futures rose on Friday after the major averages extended a three-week sell-off on Thursday as renewed tariff threats from President Donald Trump rattled investor confidence. In Thursday’s regular trading session, the Dow Jones Industrial Average fell 1.30%, the S&P 500 slid 1.39%, whilst the Nasdaq Composite declined 1.96%.
US consumer price inflation fell more than expected to 2.8% in February, below 3.0% in January and the 2.9% expected by economists at Reuters. The figures bolster the case for the Federal Reserve to cut interest rates amid signs of slowing growth in the world’s largest economy. The US central bank faces a difficult balancing act as it tries to bring down inflation without triggering a recession, amid intensifying fears that Donald Trump’s aggressive economic agenda is hampering growth.
Businesses and financial markets have been rattled by the chaotic roll-out of the President’s tariffs on the US’s biggest trading partners, which has been marked by sudden escalations and u-turns. The figures also showed core inflation rose by 3.1%, falling short of expectations of a 3.2% increase.Federal Reserve Chair, Jerome Powell played down concerns over the health of the US economy last week after the S&P 500 index’s post-election gains were wiped out following the release of disappointing employment figures for February. Powell also suggested that he expected the US central bank to hold interest rates at their current range of between 4.25% and 4.5% at its meeting next week.
Some economists and investors fear Trump’s tariffs will fuel US inflation with the price of several metals, including aluminium rising after the administration imposed steep tariffs on imports from Wednesday. The White House’s decision to impose 25% levies on all steel and aluminium imports triggered swift retaliation from the European Union, which is targeting up to €26 billion of US goods with tariffs.
Trump has also threatened a 200% retaliatory tariff on alcohol imports from the European Union if the block imposes a duty on US whiskey in the latest bombardment in his escalating trade war. Tariffs on EU alcohol exports to the US would be a major blow to a high-profile European industry and knock some of the region’s biggest companies.
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