01 March 2025
by Tony Redondo
There has been much activity in the first weeks of Donald Trump’s second term as President, but one subject has dominated above all, tariffs. Trump has so far announced plans to impose a 25% tariff on all imports from the EU, Canada and Mexico. There is no start date yet on the tariffs on the EU, but they are scheduled to start on Canada and Mexico on 4 March. On China, Trump first announced plans for a 10% levy but now plans to double it in retaliation for Beijing’s failure to stop drugs such as fentanyl from “pouring into” the US.
Whatever the rights and wrongs of Trump’s tariff policy, it’s fair to say that unpredictable and inconsistent economic policies frustrate business planning. It remains to be seen whether tariffs are a set policy for this administration or are going to be used as a bargaining chip.
Currency Exchange Rates Update
The Pound enjoyed a great end to February, climbing to its highest level against both the Euro and US Dollar since mid-December; against the Australian Dollar since April 2020; against the Canadian Dollar since March 2018 and a 2025 high against the South African Rand.
Two key factors are benefiting the Pound. The interest rate differentials between the currencies and the swing to risk aversion in the financial markets with all the tariffs and geo-political events dominating the global news cycle.
What’s in the news?
UK
The UK seems set to avoid tariffs on goods imported into the US. After meeting with PM Starmer, Trump said “We’re going to have a great trade agreement, one way or another. We’re going to end up with a very good trade agreement for both countries and we are working on that as we speak. I think we’ll have something, maybe in terms of possibilities, agreed very shortly.”
International aid minister Anneliese Dodds quit over Sir Keir Starmer’s bid to slash the aid budget to pay for higher defence spending. Some would say it’s instructive that Labour Ministers will resign over foreign aid but not over the assault on UK farmers and pensioners.
Chancellor Rachel Reeves is under increased pressure to raise taxes, cut public spending or both at the Spring Spending Review due to be announced on 26 March after the ONS (Office for National Statistics)revealed data that Government borrowing was more expensive than expected in January, while tax revenue fell below expectations. The ONS figures show that for the full year, borrowing came in at £118.2bn, exceeding the OBR’s £105.4bn forecast.
Good news
The Lloyds business confidence index increased by 12 points in February, taking it to 49%, the highest level since August and significantly above the long-term average with firms increasingly optimistic about the health of the economy.
The improvement was mainly driven by growing economic optimism, which rose by 18 points, the largest monthly increase since late 2020.
Hann-Ju Ho, senior economist at Lloyds Commercial Bank, said “Increased optimism, along with an expected uplift in trading prospects, is prompting businesses to invest in growing and upskilling their workforce, putting them in a prime position to capitalise on increased demand and drive future growth”.
Plans to create a £1bn, 10GWh battery gigafactory in Coventry which will create over 1,000 jobs by 2030 have been revealed after Volklec, a battery manufacturing start-up entered into an exclusive license agreement with China-based FEB (Far East Battery). The deal will see Volklec manufacture advanced lithium-ion batteries later this year from its base at the UK Battery Industrialisation Centre.
Not so good news
February month end brought yet another glitch in the UK’s online banking system with customers of Lloyds, Halifax, Nationwide, and other major banks facing online banking and payment issues today, on payday for many. This isn’t isolated; recent glitches (e.g., Barclays) hint at UK banking fragility.
Lloyds, Nationwide and Halifax among banks hit by app outage on payday
In its annual report published last Thursday, Lloyds Bank said its top two bosses would receive nearly £2m in bonuses in 2024 in addition to their regular payouts. Lloyds was understood to have told some 6,000 tech and engineering staff that their jobs were at risk of redundancy as part of a structure overhaul designed to accelerate its technology development. The lender’s profit also took a tumble in its annual results as the motor finance scandal heats up.
Analysis from Towergate Direct revealed the “true cost” of being a landlord after property maintenance costs has soared by 26.24% since 2022.
The ONS reported that almost 1m, 16 to 24-year-olds are neither employed, looking for a job nor studying, the highest level since the end of 2013 when the economy was still recovering from the financial crisis.
The ONS also reported that more than half a million benefit claimants who are out of work because of ill health have never had a job.
Rain Newton-Smith, head of the CBI (Confederation of British Industry) speaking at the NFU (National Farmers’ Union’s) conference attacked Rachel Reeves’ tax raid on farmers, arguing that it risks endangering food security and hampering economic growth. Newton-Smith said there was no sector more “foundational” to the UK economy than farming.
Adzuna, a job vacancies website reported that Britain’s jobs market suffered the worst start to a year in 2025 since the depths of the Covid lockdowns in 2021, as hard-pressed employers cut hiring in the face of Rachel Reeves’s record tax increases.
USA
The US Commerce Department reported that US inflation eased slightly in January with the personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increasing by 0.3% for the month and showed a 2.5% annual rate. These numbers are in line with Dow Jones consensus estimates and are likely to keep US interest rates on hold.
Applications for US unemployment benefits rose to the highest this year amid an increase in company firings across the country and matching the highest level since October.
Pending home sales dropped 4.6% between December 2024 and January 2025, to the lowest level since the National Association of Realtors began tracking this metric in 2001.
Apple Inc. announced it will hire 20,000 new workers and spend $500 billion in the US over the next four years in a big gesture of support for President Donald Trump’s push for more domestic manufacturing and comes at a time that Apple is seeking relief from punishing tariffs on goods from China.
The EU
A 25% tariff on EU goods entering the US should place further downward pressure on the Euro as markets anticipate reduced demand for EU exports, which totalled €158 billion to the US from Germany alone in 2023. A spokesperson for the European Commission responded to Trump’s move that it will react strongly and immediately against unjustified obstacles to free and fair trade.
German inflation stayed unchanged at a higher-than-expected 2.8% in February. This was unchanged from January, but higher than the 2.7% reading forecast by economists surveyed by Reuters.
A new chapter in German politics began last week following the federal election which saw the conservative alliance made up by the CDU (Christian Democratic Union) and its sister party the CSU (Christian Social Union) win 28.6% of votes. The AfD (Alternative for Germany) came in second place with 20.8% and the centre left SPD (Social Democratic Party) third with 16.4% of the vote. Germany’s conservatives under Friedrich Merz and the Social Democrats are starting exploratory talks on a coalition today with chancellor-in-waiting Merz aiming to form a government by mid-April. Alice Weidel, leader of the AfD warned “If the CDU commits electoral fraud against its own voters by forming a coalition with the left, the next election will come sooner than you think.”
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Credit ratings agency S&P Global Ratings put a negative outlook on its assessment of France’s creditworthiness. The change in outlook reflects “rising government debt amid weak political consensus for tackling France’s large underlying budget deficits, against a backdrop of more uncertain economic growth prospects”. S&P kept its AA- rating on France, in line with the Czech Republic and Slovenia.
Others
Australia’s Monthly Consumer Price Index Indicator reached 2.5% year-on-year, softer than the 2.6% analysts were expecting and increasing the odds on a quicker than expected interest rate cut to follow February’s cut by the RBA (Reserve Bank of Australia).
China vowed to counter Donald Trump’s latest tariff threats “with all necessary measures”.
Bitcoin plunged below $80,000 last week. Trump’s tariff threats have jolted markets into a sentiment of risk aversion that’s dragging down stocks, commodities and crypto alike. A $1.5 billion Ethereum hack at Bybit has also shaken trust, while macroeconomic and geo-political jitters and institutional ETF sell-offs add fuel to the ‘doom and gloom’ fire.
Stranger than fiction
Amid what feels like constant ‘doom and gloom’in the 24/7 news cycle, UNICEF (United Nations International Children’s Emergency Fund) reported:
– Since 1990, annual under-five child mortality has declined by 60%.
– Since 2000, the number of children with stunting has declined by 40%.
– Safe water is available to 2.1 billion more people compared to 20 years ago.
– Open defecation has declined by two-thirds since 2000.
-In the past 25 years around 1.9 million deaths and 4 million HIV infections have been averted among pregnant women and children.
– Over 68 million child marriages have been prevented in the last 25 years.
– 23 million more girls finish high school each year compared to a decade ago.
– Vaccines have saved 154 million lives in the last 50 years
Quote
Joseph Stiglitz, Nobel winning Economist, “In developing countries, lack of infrastructure is a far more serious barrier to trade than tariffs.”
