9 April 2025: Is it diplomacy or cowardice?

The Prime Minister is continuing to use the same rhetoric when being asked if he will retaliate against the imposition of tariffs on UK exports to the U.S. Starmer’s “calm and measured” response is beginning to look like either dithering or cowardice in the face of the uncertainty that is likely to continue for as long as Trump believes in his policies.

On a visit to JLR’s plant in the Midlands earlier this week, Starmer promised that he had the company’s back, but, so far, these appear to be empty words.

The company has paused shipments to the U.S. pending a review of their business strategy since simply passing on the 25% tariff to their suppliers and ultimate customers would see sales plummet. Furthermore, many of the vehicles that would make up the April deliveries have already been sold at the pre-tariff price, which means that JLR would have to bear the additional cost themselves.

The UK should not “jump in with both feet” to retaliate against Donald Trump’s trade tariffs, Sir Keir Starmer has said.

The Prime Minister told a group of senior MPs that he was not open to “trading away” the NHS as part of an economic agreement with the US designed to stave off the impact of import taxes.

Starmer was also “very clear” that a digital tax on big tech firms should remain in place, as reports suggested abolishing the levy has been raised during negotiations with the US. The Prime Minister’s call for a calm approach to US tariffs came as a sense of optimism returned to the financial markets after several days of heavy losses.

However, that optimism may drain away if the UK simply does nothing in the hope that it will make a breakthrough in trade negotiations, which are continuing.

Several experts have said that they believe that in the case of the UK, Trump believes that he has already taken note of the special relationship that exists between the UK and the U.S. and is unlikely to want to make any changes to the tariffs on UK goods.

Bank of England Governor Andrew Bailey has said his team is monitoring the situation closely. They have one eye on the prospects for inflation continuing to fall while also studying the possibility of the economy that growth and economic output will struggle to remain positive in the coming months.

The chances of a rate cut in May have increased significantly since the imposition of tariffs, as the other measures that have been introduced recently are expected to see inflation fall further.

The minutes of the latest meeting of the Financial Policy Committee are due for publication later this morning. They are likely to highlight the risks to the financial system of the stress that is being placed on the system by the rise in uncertainty, even though Rachel Reeves has told Parliament that the markets are still performing efficiently.

Sterling rallied as asset markets calmed down following Trump's recent announcement. It reached a high of 1.2941 and closed at 1.2821.

Asset markets in the U.S. halted their recent falls yesterday as the Administration appeared to be open to “doing deals” with some of the country’s largest trading partners, which would see the level of tariffs reduced or removed entirely.

The President, who appears to have developed a penchant for making policy in the middle of press briefings, told reporters that he is “waiting for a call from China”, while his team said that trade talks with Japan would begin imminently.

Stagflation develops when sagging production and high unemployment combine with surging inflation, creating a bleak economic environment. Although the economy is not showing evidence that employment is weakening, the March payrolls data was quite positive, sentiment is definitely on the wane.

Economists had already started sounding alarms about the possibility of slower economic growth combined with higher prices, even before President Donald Trump’s announcement of the largest increase in tariffs in U.S. history sent American and global markets tumbling and stoked recession fears.

Weakening consumer spending, signs of a tightening labour market and a new surge in inflation because of tariffs could usher in the onset of a particularly nasty economic, but rarely seen, environment known as “stagflation.”

Economic slowdowns tend to come about when consumers stop buying things, which leads to a slowing in a broad array of sectors, triggering layoffs. Surging prices are probably more familiar to Americans, but most economists think that tariffs would reverse the progress policymakers have made to bring inflation down and would send prices soaring.

Trump is so “married” to his economic policies that even a warning from one of his staunchest supporters, JPMorgan Chase CEO Jamie Dimon, is unlikely to persuade him to change course.

Dimon said on Monday, and reiterated yesterday, that stagflation could be the outcome of the imposition of tariffs. However, markets believe that that would need the Fed to continue to “sit on its hands”, which is considered highly unlikely.

An emergency rate cut would be counterproductive since it is a sign of panic, but if the FOMC gave gradual encouragement to the markets about its views on lower rates, it may be an effective tool.

The dollar index recovered some poise yesterday. It climbed to a high of 103.29 but settled back to close at 103.05.

Members of the ECB’s Governing Council seem to want to use the turmoil created by the imposition of 25% tariffs on European exports to the U.S. as a reason to pause the Central Bank’s cycle of interest rate cuts, which began last year. In fact, the opposite is true, and the economy is more likely in need of the stimulation that the continued loosening of monetary policy would bring.

Greece’s Central Bank Governor, Yiannis Stournaras, told reporters yesterday that he feels that rising global trade tensions, driven by new U.S. tariffs, could stoke inflation across the eurozone and delay the ECB’s plans to normalize monetary policy.

Speaking at the Bank of Greece’s annual shareholders’ meeting in Athens, Stournaras pointed to the risks of a broader trade war, cautioning that higher import costs triggered by U.S. President Donald Trump’s tariff measures could weigh on global supply chains and stall the euro area’s recovery.

“Any further resurgence in inflation or inflation expectations could delay or even halt the process of monetary policy normalization, worsening financial conditions and growth momentum,” Stournaras said.

His comments come amid market volatility sparked by the tariffs, which analysts say may strengthen the case for the ECB to cut interest rates further at its upcoming meeting. Some economists are even suggesting faster and more aggressive monetary easing to shield the eurozone economy.

While Greece is expected to grow at a healthy 2.3% in 2025, outpacing many of its eurozone peers, Stournaras acknowledged that the country is not immune to global shocks. Though the direct impact from U.S. duties is likely to be limited, Greece’s export sector, including olive oil, petroleum products, and its signature feta cheese, could face reduced demand due to broader disruptions in international trade.

“Tariffs imposed on one country’s imports would affect other countries participating in the global supply chains, even if no countermeasures were imposed,” he noted.

For Greece, which is still recovering from the effects of a decade-long debt crisis, Stournaras stressed the importance of maintaining prudent fiscal policies, continuing reforms, and attracting investment as buffers against global uncertainty.

“Greece must stay the course, build confidence, stay competitive, and make the most of its strong growth momentum,” he concluded.

A general slowdown in the region could affect the newly found confidence of the nations that have recovered from the rigours imposed in the wake of the financial crisis. This will need to be considered when the ECB next meets to discuss monetary policy.

The Euro broke back above the 1.10 level as markets in Europe stabilized. It reached a high of 1.1038 and closed close to that level.

Have a great day!