7 April 2025: Starmer vows to “shelter the economy”

The Prime Minister is working to limit the effect of the tariffs on UK exports to the U.S., which President Trump announced last week. Sir Keir Starmer is expected to announce a “reset” of the Government’s economic strategy to try to shelter UK businesses that are still reeling from the measures introduced by Rachel Reeves since she became Chancellor of the Exchequer.

In an immediate response to the 25% tariff on all foreign-built vehicle imports, Jaguar Land Rover has announced that it will pause shipments to the U.S. until the situation is more precise.

Jaguar Land Rover Automotive, one of Britain’s biggest carmakers, said on Saturday that the pause would take place this month.

“The USA is an important market for JLR’s luxury brands,” the company said. “As we work to address the new trading terms with our business partners, we are taking some short-term actions, including a shipment pause in April, as we develop our mid- to longer-term plans.”

Analysts said they expect other British carmakers to follow suit as the increased tariffs heap more pressure on an industry which is already struggling with declining demand at home and the need to retool their plants for the transition to electric vehicles.

Starmer is said to be considering relaxing the rules relating to the phasing out of petrol-driven vehicles.

The increase in employers’ National Insurance Contributions, which was announced by Reeves in her Budget last October, comes into force today. The increase, from 13.8% to 15%, is accompanied by a lowering of the threshold on which payments begin from £9,100 to £5,000.

This is on top of the national minimum wage rising, the business relief rate for hospitality, retail and leisure reducing from 75% to 40% and the rising cost of ingredients and services.

Ms Reeves said the move would raise £25bn per year by 2029, adding that she did not "take this decision lightly".

Starmer has yet to decide on how the UK will react to the measures announced by President Trump last week, which have seen global stock markets tumble. By and the UK’s largest exporters have welcomed his cautious approach, feeling that should the UK introduce retaliatory measures, he could inflame Trump and make the situation worse.

The pound reversed its gains made in the aftermath of Trump’s announcement as traders began to focus on the effect on America’s trading partners. It fell to a low of 1.2840 and closed at 1.2867.

Jerome Powell has taken Trump’s call to “hang tough” a little too literally for the President’s liking. Powell had been tight-lipped since the Administration announced the imposition of tariffs on goods imported into the U.S.

However, speaking at a conference for business journalists on Friday, Federal Reserve Chair Powell indicated that the U.S. economy is likely to face higher prices and weaker growth following President Trump’s recent tariff announcements.

Powell emphasized the Fed’s commitment to wait for “greater clarity” before adjusting monetary policy. This cautious stance comes amid mixed economic signals, with the latest jobs report showing slower-than-expected growth and manufacturing activity contracting.

One thing Powell is not going to do is be badgered into taking actions that he feels will be detrimental to the economy.

The March jobs report released on Friday showed the U.S. added 228,000 jobs, beating the 151,000 forecast.

While unemployment remained steady at 4.2%, hourly wages grew by 3.9% year-over-year, slightly below expectations.

Additional economic indicators revealed a contracting manufacturing sector, with the ISM Manufacturing Index dropping to 49.5%, while the services sector showed slowing growth at 53.0%.

One bright spot was an improvement in the trade deficit, which narrowed to $123 billion from $131.4 billion.

Naturally, Trump took credit for the number of new jobs created, showing that his policies are working. If he is still saying that at the end of the second quarter, it will surprise many people.

Powell’s remarks highlighted a significant departure from the Fed’s approach during Trump’s 2019 trade war with China, when it cut rates preemptively.

“We’re well positioned to address whatever may come. And in the meantime, I’d say we’re waiting for greater clarity before we consider adjustments,” Powell stated. He emphasized the Fed’s primary concern about inflation expectations, noting his “obligation” to ensure that one-time price increases from tariffs don’t become an ongoing inflation problem.

Shortly before Powell’s speech, Trump urged the Fed chair to cut rates on his social media platform, saying Powell is always “late” but “could now change his image, and quickly.” However, Powell reiterated that the Fed “doesn’t need to be in a hurry” to cut rates.

Further volatility is expected this week as more nations affected by the tariffs either take measures to shore up their economy or act to pre-empt the measures.

The dollar bounced off its lows as traders felt it was too early to decide that the economy was headed for a recession. It reached a high of 103.12 and closed at 102.95.

The ECB appears to still be on course to perform its seventh rate cut in the current cycle when its Governing Council meets in a couple of weeks.

European Central Bank policymaker Isabel Schnabel said on Saturday that the eurozone economy’s long-standing structural headwinds have been exacerbated by a surge in uncertainty, which may get even worse in the wake of US trade tariffs.

Speaking at an economic forum in northern Italy, Schnabel said the ECB would look closely in the coming weeks at the implications for eurozone growth and inflation of the tariffs announced by US President Donald Trump on Wednesday.

For now, she said recent events had caused “a dramatic surge in uncertainty”, which may be only the beginning.

“Some people had the view that Liberation Day, the name Trump gave to his tariff announcements on Wednesday, could be the day of peak uncertainty, but I’m not entirely sure if that is the case,” she said.

Schnabel, who sits on the ECB’s Frankfurt-based executive board, directly rejected an assertion by Trump that the European Union had been formed to “screw” the United States.

“Of course the EU was not born to screw the United States, but it was born to make Europe thrive,” she said.

European Union trade ministers will meet this week to announce the measures the region will adopt in reaction to the tariffs. Trump is trying to “lump together” his reactions to several issues that he has with the European attitude to several issues.

Russian oil exports, the war in Ukraine and European defence spending each need separate careful consideration rather than Trump’s sledgehammer approach.

Economists are taking turns to slash eurozone growth forecasts after Trump’s 20% tariffs on EU exports. Weaker trade, confidence, and investment now dominate outlooks, boosting expectations for ECB rate cuts, with April seen as likely. Inflation risks take a back seat for now.

Experts broadly agree that the tariff shock will weigh on consumption and investment, while inflation concerns are likely to take a back seat as deteriorating growth dynamics dominate.

This shift strengthens the case for the European Central Bank (ECB) to accelerate its rate-cutting cycle, with the likelihood of an April move increasingly priced in.

According to Dutch Bank ABN Amro, quarterly growth is expected to remain near zero in the near term, with a strong likelihood of contraction. However, front-loading effects may obscure the precise timing.

“We expect the lowest point for growth to occur in the third quarter,” The Bank’s Chief Economist said on Friday. “A recovery should begin towards the end of the fourth quarter and gain momentum in 2026.”

The Euro found the air above the 1,10 level a little too rarified on Friday, leading to the single currency to correct its recent rally. It fell to a low of 1.0890 and closed at 1.0950.

Have a great day!