1 May 2025: Starmer faces a nightmare choice between Trump and Carney

It seems likely that Sir Kier Starmer will be forced to choose between Donald Trump and Mark Carney at some point shortly, as Trump has made it clear that he believes that it would be in the interests of both Canada and the United States if Canada became the 51st state in the Union, something that would be as much anathema to London as it is to Ottawa.

Britain is fighting to nail down a US trade deal, but Donald Trump wants to make a Commonwealth ally America's 51st state. A mutually acceptable trade deal with the United States is one of Brexit’s most glittering prizes. It would be a personal triumph for Starmer to nail this down, especially as it eluded his Conservative predecessors.

If only the Trump White House had a similar hunger to sign. Reports that Team Trump is prioritising Asian countries and once again pushing for Britain to water down food standards signal they are hardly pulling out the stops.

Trump knows that securing a deal is a top UK foreign policy objective. He has leverage over Starmer. Why would he rush to give that up? The trouble for Sir Keir is that the longer the delay, the greater the chance he falls out with Mr Trump, most likely over Ukraine.

House prices have slumped as the market feels the effect of Rachel Reeves’s stamp duty raid, data shows. Between March and April, the average UK property value fell 0.6pc to £270,752, according to Nationwide’s house price index.

The trend was driven by the end of the stamp duty discount on April 1, which property experts said amounted to a “cruel tax blow” for thousands of home buyers.

Separate data from HMRC shows property transactions rose by 62pc from 109,700 in February to 177,370 in March as buyers raced to complete sales ahead of the deadline.

Rachel Reeves has been warned that “tough trade-offs” await her at this summer’s spending review, with think tank Resolution Foundation urging the chancellor to focus spending on health and housing if she aims to increase living standards.

The Chancellor has pledged investment of more than £100 billion to boost capital budgets throughout the current parliament, and the country should know more details at this summer’s spending review. Capital spending refers to money allocated for projects such as new hospitals or road schemes instead of day-to-day running costs like salaries.

The Treasury is conducting the review, which will set budgets for government departments for the next three years regarding day-to-day spending. The process will determine budgets for so-called unprotected departments, including local government, justice, transport, and culture. Protected departments include defence, the NHS (health), and schools within the education sector. According to Reeves’ self-imposed rules, day-to-day spending must be paid for by tax income, not increased borrowing.

Sterling saw a gradual decline for most of yesterday’s trading. Opening at 1.3400, it moved lower throughout the day before closing at 1.3327.

President Trump gave his best impression of a child “caught in the act” yesterday, telling reporters that “it wasn’t me, I wasn’t there, it happened before I arrived.”

He was referring to the news that the economy shrank by 0.3% in the first quarter of 2025. It is, of course, true that the real mayhem in the economy didn’t start until April 2nd, but importers had increased orders between January and March, aware that there was going to be some kind of levy imposed as the President warned of measures that would be introduced to boost the U.S. manufacturing sector, which caused a surge in imports.

The January-March drop in gross domestic product, the nation's output of goods and services, was down from a 2.4 per cent gain in the last three months of 2024. Imports grew by 41%, the fastest since 2020, and shaved 5% off first-quarter growth.

Inflation in the US, as measured by the change in Personal Consumption Expenditures, edged lower to 2.3% annually in March from 2.5% in February, the US Bureau of Economic Analysis reported yesterday. This reading came in above the market expectation of 2.2%

The core PCE Price Index, which excludes volatile food and energy prices, rose by 2.6% in the same period, down from the 3% increase reported in February, in line with analysts' estimates. The core PCE Price Index was unchanged on a monthly basis.

Other details of the report showed that Personal Income and Personal Spending grew 0.5% and 0.7%, respectively, on a monthly basis in March. Both of these figures came in better than investors' expectations.

A group of former top world central bankers says the Federal Reserve should scrap its nearly five-year-old bias towards jobs and keep a stricter focus on inflation, a recommendation offered as the U.S. central bank conducts a strategy review. This is confirmation of the view expressed by Jerome Powell.

The Fed should "always seek to bring inflation back to its 2% inflation target" and drop the current pledge to use periods of high inflation to offset periods when prices rise too slowly, said the panel, chaired by former New York Fed President William Dudley and including former central bank officials from China, Mexico, Japan, England, and Israel.

Powell, the Fed’s under-pressure Chairman, must be getting annoyed by the constant opinions provided by all and sundry about how to do his job. He may be considered “fair game” since he does not have the background in economics of his predecessors.

The President held a Cabinet meeting at the White House yesterday after marking his first 100 days back in office.

The first few months of Trump’s second term have moved at a breakneck speed, ushering in dramatic changes to the federal government, a slew of executive actions aiming to fulfil his key campaign promises and wide-ranging crackdowns on immigration, trade and culture war issues.

But as the administration crosses the early benchmark, polls are flashing warning signs about voter frustration, particularly over the U.S. economy.

The Dollar Index rose gradually yesterday as it broke several areas of resistance that had halted its progress recently. However, it stopped short of the 100 level, closing at 99.66.

Finally, some good news on the growth front for the Eurozone economy. Although the first quarter growth of 0.4% is no real cause for celebration, even if it is double the rate in Q4.

The bloc has barely grown over the past several years as businesses held back investment and households tried to rebuild wealth lost due to high inflation. However, there is an “air of optimism” pervading the twenty-nation union, currently driven in part by the creation of a five-hundred-billion wealth fund by Germany and the relaxation of its fiscal rules.

Elsewhere in the region, the dark days of winter appear to have left French politics, driven by a realisation that the spectre of Marine Le Pen has been removed from the 2027 presidential race.

Spain and Greece are making a positive contribution to growth numbers, with Spain the star, growing by 2.8% compared to a year earlier.

Unfortunately, the outlook turned sour on U.S. President Donald Trump's so-called "Liberation Day", which ignited a trade war.

Policymakers warned permanent damage has already been done to the global economy, even if there were to be an eventual resolution to the tensions. The data was distorted by a one-off 3.2% expansion in Ireland, driven largely by activity among big foreign companies based there for tax reasons.

European powerhouse Germany grew by just 0.2%, while France expanded by 0.1% and Italy by 0.3%.

Eurozone consumers are happy to ditch US products if they are hit by tariffs in the course of a tit-for-tat trade war with US President Donald Trump's administration, a European Central Bank survey showed.

The ECB's Consumer Expectations Survey, conducted in March before Trump had even announced, and later paused his tariff blitz, unexpectedly showed a preference change regardless of any price increase.

The 19,000 consumers were asked if they would look for alternatives to US products if an import tax of five per cent, 10 per cent or 20 per cent were imposed by the United States and, in retaliation, by the European Union.

"Results show that consumers are very willing to move away from US products and services actively," the ECB said in a blog post.

The survey announced earlier this week, which showed dissatisfaction with ECB President Christine Lagarde's leadership, did not spare members of the bank’s Executive Board, who received equal criticism.

While four of the six-person board, including Lagarde, can be considered Central Bankers, two are not. Isabel Schnabel should be regarded as a “technocrat”. She manages the ECB’s bond portfolio, while Philip Lane, who was Governor of the Bank of Ireland, now manages the Bank’s economics team.

Were the decision taken, although by whom is unclear, to “shake up” Executive Board membership, it is difficult to see who would replace the current members.

The chart of yesterday’s trading in the Euro is a mirror image of the same chart for the Dollar Index. The single currency began the day at 1.1328 and after a quiet day's trading, it ended at 1.1310.

Have a great day!