11 April 2025: Haskell signals his intention to vote “hold”

When one hears members of the current Government talking about their reaction to the imposition of tariffs on UK exports to the U.S., it makes you realise how far the country has fallen over the past fifty years.

During Margaret Thatcher's time, she would have stood at the dispatch box in Parliament and delivered a speech in which she would have provided a concise and direct response that would have given confidence to the markets.

The UK is no longer at the top table when it comes to global trade negotiations. The U.S. has been joined by China since the millennium, with Germany, Japan, and even Canada and Mexico well above the UK.

Since Thatcher, successive Governments and Prime Ministers have contributed to the demise of UK influence. It began with Blair, who disgraced himself over the WMD search in Iraq and continued with the coalition government of David Cameron, which was harassed into calling a referendum on the UK’s membership of the European Union, the result of which led to his resignation.

Theresa May dithered while leading a minority Government before Boris Johnson took over, and the country briefly had a leader who was comfortable on the world stage. When he was hounded from power, handing the reins to Liz Truss with potentially disastrous consequences for the economy, the Conservative Party imploded, resulting in the Labour Party coming to power last July.

Now, the Labour Government of Sir Keir Starmer has shown itself to be ill-equipped to deal with events nationally and internationally. The Chancellor has tried to run before she could walk, wanting to fix every issue on day one but going about it most clumsily, while the reaction to the imposition of tariffs has been inertia interspersed with supposedly soothing rhetoric.

Starmer admitted yesterday that growth is going to continue to be hard to come by, even if the UK manages to agree on a trade deal with the U.S.

The current leader of the Opposition, Kemi Badenoch, has encouraged Starmer to form a coalition to present a united front to Trump, while his own Party is demanding closer ties with Brussels.

Data out this morning showed the economy is ticking up. GDP posted 0.5% growth in March after the 0.1% decline in February. Industrial production posted 1.5% for the month, which pushed the year-on-year figure back into growth of 0.1%, and Manufacturing production bounced back from a 1.1% decline last month to post 2.2% growth this month, which pushed the year-on-year figure back into growth of 0.3%.

This data does not take into account either the Trump Tariffs or the changes to employers’ National Insurance contributions and the increase in the national living wage.

The Government faces a tough time in next month's local elections, when the public will get its first chance to provide its opinion on Labour’s performance since last July.

Following the record pace of the fall in the Government’s approval rating since coming to power, the local elections will provide more tangible evidence of public disapproval.

The pound climbed back above the 1.30 level versus the dollar yesterday as Trump paused the imposition of tariffs. It reached a high of 1.3001 and closed at that level.

Despite the chaos in the markets since Liberation Day, which was declared just over a week ago, the economy may well have succeeded in making a “soft landing”.

There is no “market standard” for the declaration of a soft landing, and it is doubtful that Fed Chair Jerome Powell will even subscribe to the notion that it has been achieved, but with the latest employment data continuing to show robust growth and inflation in March falling to 2.4% market analysts and investors will be encouraged.

With the on-again/off-again nature of the imposition of tariffs bringing increased uncertainty, which could see GDP suffer over the next two quarters while inflation may rise towards the 3% level, the FOMC will be presented with a pyrrhic victory that may be short-lived.

A soft landing, together with its distant cousin, stagflation, are almost mythical events that require either careful creation or a combination of unusual events.

Powell has been massaging the economy towards a soft landing for the past year. He has faced severe difficulties as the unusual fiscal support the economy received post-pandemic worked its way through the system, creating unpredictable levels of inflation which required careful management of monetary policy.

He has now reaped the benefit of having the luxury of pausing any loosening of policy before the next storm arrives in the shape of Trump's “unusual and chaotic” economic policy. Those policies could demand that interest rates move in either direction.

Trump’s decision to press pause on the imposition of tariffs on all but China provided a lift to asset markets yesterday. However, he continued to put pressure on China by confirming that its tariff level would be 145%, which is the original 20% plus the added 125%, which was announced earlier this week.

Beijing has reacted by announcing that it is open to talks but will not discuss a deal while it has a gun figuratively pointed at its head.

Next week will see the publication of retail sales data as well as industrial production figures. Consumers are likely to have tried to get ahead of the tariffs, although with February’s numbers having been expectationally strong at 3.1%, some drop-off may be expected.

The dollar index flirted with the 100 level yesterday, before breaking through in early far east trading. It has reached a low of 99.95 but has seen some buying interest, which has limited its fall.

President Donald Trump's policies in recent weeks have eroded confidence in the US dollar, European Central Bank policymaker Francois Villeroy de Galhau said on Thursday.

Speaking on France Inter radio, Villeroy, who is also head of the Bank of France, said the protectionism and unpredictability of the Trump administration were "bad elements" for the US economy.

He believes that the chaos caused by Trump’s action could present a unique opening for the Euro to establish itself as the pre-eminent means of exchange in global trade.

On Wednesday, U.S. President Donald Trump said he would temporarily pause the hefty duties he had just imposed on dozens of countries while further ramping up pressure on China, sending global stocks rocketing higher. However, the volatility these actions have created in the currency markets has made hedging exposures nigh on impossible.

The volatility experienced by the euro since the turn of the year has made the task of those importing or exporting goods almost impossible. Some manufacturers are hedging their exposures, while others see leaving positions open to provide a hedge in their own right.

Negotiations with Washington on how to avoid higher tariffs altogether are handled by the European Commission, which is in charge of trade policy for the whole 27-nation EU.

If there is a deal with the U.S. on trade within the next three months, possibly along the lines of the EU's zero-tariff proposal on all industrial goods, the problem would be solved.

But a no-deal outcome is also possible, which would leave the response in the hands of the 27 EU governments that will have to help the industrial sectors hit hardest. The most affected industries are steel, aluminium, cars, timber and pharmaceuticals. U.S. tariffs of 25% are already in place on steel, aluminium and cars.

The ECB and the European Commission estimate the impact of the U.S. tariffs on the EU economy would be substantial and total 0.5% to 1.0% of GDP. Given that the EU economy as a whole is forecast to grow 0.9% this year, according to the ECB, the U.S. tariffs could put the EU in recession.

Coordination of industry support will be key because some governments have stronger public finances and can afford to help their companies while others cannot. Such inequality would distort fair competition in the single EU market.

"Ministers will share their view as to how one could react at the national level, but then the idea is to coordinate, because we wouldn't like to see a race to flood national markets with money in an uncoordinated way," an official said on condition of anonymity.

The euro soared following the announcement of a pause in the imposition of tariffs. It has reached a high of 1.1314 overnight, but its next move is subject to any developments today and over the weekend.

Have a great day!