11 February 2025: The UK steel industry may have been dealt a fatal blow

Donald Trump’s addition of 25% tariffs on the import of steel and aluminium into the United States may sound like a death knell for the British steel industry, which has been in decline for several years.

The Prime Minister has been strongly urged to protect the British steel industry from the U.S. President Donald Trump’s proposed tariffs which would be a massive, possibly fatal blow to the sector.

Sir Keir Starmer is waiting to see the details of Trump’s tariffs policies, as they have not seen “any detailed proposals” overnight.

In 2023, the UK exported 166,433 tonnes of steel to America, and trade body UK Steel figures show that in 2024, 162,716 tonnes were sent to the US. Unions are calling for action from Ministers as more job cuts could threaten the industry.

UK Steel managing Director, Gareth Stace, commented “It is deeply disappointing if President Trump sees the need to target UK steel, given our relatively small production volumes compared to major steel nations.

“The UK produces world-leading steel, supplying the US with high-quality products for defence, aerospace, stainless, and other critical sectors, materials that simply cannot be replicated elsewhere.”

Mr Stace urged the Government to take action to protect the steel industry from “the fallout of rising global protectionism,” including by accelerating the introduction of a carbon border adjustment mechanism. However, Trump has shown little regard for climate change policies in his drive to “Make America Great again.”

Andrew Bailey will make a speech later today, at which he is sure to be questioned about the possible pace and ultimate goal of interest rate cuts. He is unlikely to deviate much from the Bank’s “official line”. The bank’s website notes, “Inflation has fallen a lot, and inflationary pressures have eased enough that, in August 2024, we cut the base rate from 5.25% to 5%. Then in November, we cut it from 5% to 4.75%. And in February 2025, we cut it to 4.5%”.

It goes on to say, “If those pressures continue to ease, we should be able to reduce interest rates further over time. But we can’t say precisely when or by how much. That depends on how the situation evolves. So, we will be monitoring the British economy and global developments very closely and taking a gradual and careful approach to reducing rates further. “

The market will be far more interested in a speech also due to be made today by Catherine Mann, who shocked many observers by voting for a fifty-basis-point cut in the base rate last week, having been warning about the effects of “secondary inflation” for atomist her entire tenure as an independent member of the Monetary policy Committee.

Mann told FT that a half-point move had been needed to “cut through the noise” and make clear to traders the need for easier financial conditions.

“To the extent that we can communicate what we think are the appropriate financial conditions for the UK economy, a larger move is a superior communication device, in my view,” she said.

The pound lost ground yesterday as turbulence caused by the nature of President Trump’s pronouncements on U.S. trade policy continued to drive the market.

Sterling fell to a low of 1.2363 and closed just three points higher at 1.2366.

Elon Musk, a member of Donald Trump’s rather esoteric Cabinet, has called for the Federal Reserve to face more scrutiny of its interest rate decisions. Fed Chairman, Jerome Powell, will be concerned about this threat to the Fed’s independence, although he is expected to ignore Musk’s demands as similar to those of his boss and demand that Trump continues to pick “horses for courses” in his efforts to drive the economy forward.

It is a little ironic that Powell is facing such a dilemma, since he was plucked from a career as a lawyer to run the Fed, by Trump during his first term, when he had no background in economics.

Powell has other things on his mind today as he delivers his semi-annual testament before the House Financial Services Committee later today. The committee. is manned by several members of Congress who believe they have a far greater “handle” on the economy than the Fed Chairman.

The mixed January jobs report led traders to pull back their already-dwindling bets on a March rate cut from the Federal Reserve, as well as those for the rest of the year.

Early yesterday, markets assigned a 93.5 per cent chance of no move next month, up from 86 per cent before the latest employment data and 75 per cent four weeks ago.

What’s more, markets now point to roughly 54 per cent odds that the Central Bank will cut interest rates either once or not at all in 2025, up from 42 per cent last Thursday.

The jobs data had something of a “glass half full” nature, with something for everybody, giving both hawks and doves some encouragement.

The administration will only have itself to blame if the Fed delays further rate cuts to allow the economy to “catch up” with itself as the effect of several Trump policies becomes clear. The 25% tariff on steel and aluminium imports will not only have a significant effect on steel producers but will see inflation rise more than any of the other measures that have already been announced.

It is hard to imagine an area of the economy which will not be affected by the new measures.

While it was created with good intentions 13 years ago, the Federal Open Market Committee’s dot plot does not serve its primary purpose, providing transparency on FOMC members’ thoughts about future rates. Today, the dot plot has devolved into yet another measure that investors and analysts price in as the expected, forecasted outcome.

However, there are several reasons why this is a problem: The dot plot doesn’t have a good track record, its dispersion among FOMC members is not reflective of actual votes, and it can contradict the message the FOMC is trying to send.

It seems pointless that non-voting members of the FOMC expectations are included in the dot plot.

The FOMC should put a stop to the exercise, it causes more confusion and volatility for the market than benefits, since it is very much opinion-based and not reflective of the likely outcome of future FOMC meetings.

The dollar is still reacting to Trump’s pronouncements. Yesterday it rallied as the latest tariff announcement is expected to add to inflation and reduce the chances of further rate cuts.

The Greenback rallied to a high of 108.45 but fell back later on to close marginally lower at 108.33.

The discussion concerning the neutral rate for interest rates in the Eurozone seems to be taking on a life of its own.

Every economist, analyst, and market commentator has an opinion and is not afraid to voice it, although it now seems that the “official line” from the ECB is that rates will be neither accommodative nor restrictive for growth when they reach between 1.75% and 2.25%.

Simple mathematics means that the entire market view is that the ECB is targeting 2% as the point it is aiming for. This could happen in as few as two meetings if the ECB is genuinely concerned about a recession which the economy has been teetering on the edge of for some considerable time.

European Central Bank President Christine Lagarde told MEPs yesterday that while wage growth in the euro area is still “elevated,” it is “moderating as expected.”

Talking about prices at a plenary session of the European Parliament, she reiterated that greater friction in global trade could make the Eurozone inflation outlook “more uncertain.”

“Inflation is set to return to our 2% medium-term target this year, with risks on both the upside and the downside,” she said. The ECB head reassured the public that the central bank will continue to stay committed to its fight against inflation and make decisions meeting-by-meeting.

She believes that cutting rates too slowly could see the economy falter while inflation falls more quickly, although a series of rate cuts or larger incremental values could see an overshoot, which would also not be beneficial for the economy.

ECB Vice President Luis de Guindos warned yesterday that there would be no winners in a potential trade war between the United States and the European Union, adding that “everyone would lose” as a result of lower economic activity.

In an interview with Spanish broadcaster RTVE, De Guindos who is a member of the Bank’s executive board and the rate-setting Governing Council, emphasized that European officials should be “cautious and intelligent” when making statements on the possible response to the tariffs on EU goods and the global duties on steel and aluminium imports announced by US President Donald Trump, as “initial announcements sometimes fail to materialize.”

However, he warned that the situation in the global economy is “extremely uncertain” and “the most complex since COVID” after the “paradigm shift” in the world’s leading economy.

De Guindos, who is an ex-minister in the Spanish Government, comments perfectly illustrate the issues that the market has with the EU currently. Every announcement or policy decision made anywhere in the world which affects the European Union attracts a multitude of comments from “officials” from within the region, which muddy the waters and make deciphering what is “policy” almost impossible.

The Euro is again coming close to testing the bottom of its current range. Yesterday, it fell to a low of 1.0285 and closed at 1.0307.

Have a great day!