28 March 2025

28 March 2025 header image

UK markets were little changed this week, with the FTSE 100 Index falling 0.1% to trade at 8,660 points at the time of writing.

UK Chancellor Rachel Reeves has faced warnings that she could be forced to raise taxes in the Autumn Budget, even after she unveiled a £14 billion plan to fix the UK’s strained public finances in the Spring Statement on Wednesday. The plans included £4.8 billion of cuts to welfare payments and £3.6 billion of reductions to departmental spending, designed to prepare the country for “a world that is changing before our eyes”. About 250,000 people, including 50,000 children will be pushed into relative poverty by the cuts, according to a government impact assessment that alarmed many Labour MPs. However, Reeves warned that the painful measures may not be enough. The Office for Budget Responsibility said the accumulated £9.9 billion of headroom against her key fiscal rule could be wiped out by a full-blown trade war.

Even before any new measures, tax as a share of GDP is forecast to rise from 35.3% this year to a historic high of 37.7% in 2027-28 and remain at a high level. Reeves declined to speculate on whether she might be forced to raise taxes later this year to put the public finances on a sounder footing.

The Spring Statement showed growth forecasts for 2025 had been halved from 2% to 1%, although the Office for Budget Responsibility upgraded growth to an average of 1.75% a year for the remainder of the parliamentary term. One notable surprise was that according to Office for Budget Responsibility calculations, a relaxation of planning rules would provide a £3.4 billion boost by 2029-30.

UK inflation unexpectedly fell to 2.8% in February, according to figures from the Office for National Statistics, which was below the 2.9% forecast by economists in a Reuters poll and the 10-month high of 3% recorded in January. The decline was driven by a fall in clothing prices, which dropped 0.6% in the 12 months to February, marking the first contraction since October 2021. However, services inflation, a key measure of underlying price pressures for Bank of England rate setters, held at 5% in February, whereas economists had expected a decline to 4.9%. Investors are now pricing a roughly 50/50 chance of a 0.25% interest rate cut at the Bank of England’s next meeting, up slightly from before the data.

Elsewhere, British retail sales rose by 1% in February, monthly data from the Office for National Statistics showed, exceeding expectations, propelled by an increase at clothing and household goods shops despite falling consumer confidence and lacklustre economic growth.

Commodity Markets

In the commodity markets, Brent crude futures traded around $74 per barrel on Friday and are set for a weekly rise, as markets assessed new US tariffs, while concerns over global supply kept prices near one-month highs.

US President Donald Trump imposed new 25% tariffs on potential buyers of Venezuelan crude on Tuesday, causing India’s Reliance Industries, operator of the world’s biggest refining complex to halt Venezuelan oil imports. Trump also announced 25% tariffs on all auto imports which could potentially be a net positive for crude oil, because the rise in new car prices from tariffs will mean it slows down the switch to newer, more fuel efficient models.

Gold prices traded around $3,070 an ounce on Friday, hitting record highs, as investors sought the safe-haven asset in response to escalating global trade tensions and falling equity markets following Donald Trump’s fresh tariff plans. On Wednesday, Goldman Sachs raised its end-2025 gold price forecast to $3,300 per ounce from $3,100, citing stronger than expected ETF inflows and sustained central bank demand.

Equity Markets

US equity futures were mixed on Friday as investors awaited the latest PCE price index report – the Federal Reserve’s preferred inflation gauge. In Thursday’s regular trading session, the Dow Jones Industrial Average declined 0.37%, the S&P 500 lost 0.33%, whilst the Nasdaq Composite dropped 0.53%.

The global car industry was thrown into turmoil this week by Donald Trump’s announcement that he would impose a 25% tariff on imports of foreign made cars, which automotive executives expect will raise American vehicle prices, reduce US car production and cost carmakers up to $110 billion. Almost half of vehicles sold in the US are imported, while those assembled in the US on average source nearly 60% of their parts from overseas.

The 25% levy will come on top of tariffs that Trump has already announced against imports from Mexico, Canada and China. They will take effect from April 2nd, alongside reciprocal levies against US trade partners that are expected to be unveiled on the same day. The tariff also applies to core car components such as engines and transmissions, while processes are in place to expand the levy to other parts if necessary, the White House said. The tariffs would imply up to $9,000 in added costs for a vehicle sold in the US, according to Barclays.

The European Union’s trade commissioner, Maroš Šefčovič, expects Donald Trump to hit the block with tariffs of about 20% next week, applying equally to all 27 member states, as the US President takes aggressive steps to cut trade deficits. The US has so far given no indication that there would be any exemptions or exceptions. Šefčovič warned American officials that a tariff of 20% on imports from the EU would be devastating for the block and would be higher than at any stage since the founding members launched a common trade policy in the late 1950’s.

The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.

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