10/05/2025 by Tony Redondo
There is a saying in London which runs “You wait for ages for a bus and then two come along together”. So, it can be said with the UK-India and UK-USA trade deals finalized last week, marking significant steps in the UK’s post-Brexit trade strategy amid global economic turbulence. The UK-India deal, the largest since Brexit, slashes tariffs on 90% of UK exports, including whisky (from 150% to 75%) and cars (100% to 10%), and aims to boost bilateral trade by £25.5 billion and UK GDP by £4.8 billion by 2040, though this is modest compared to the UK’s £2.85 trillion economy. The UK-USA deal partly mitigates Trump’s tariffs, cutting duties on 100,000 UK cars from 27.5% to 10% and zeroing steel and aluminium tariffs while the UK lowers tariffs on US goods from 5.1% to 1.8% and commits to buying $10 billion in Boeing planes. However, the US deal retains a 10% tariff on most UK goods, up from 3.4% pre-tariffs, drawing criticism for favouring the US, and both deals face scrutiny for limited immediate impact.
Currency Exchange Rates Update
The Pound rose nearly 0.7% against the Euro to finish the week at a 5-week high.
The Pound rose more modestly against the US Dollar last week, gaining just under 0.3%.
This week, major economic data announcements include: –
Tuesday
UK – Employment and wages data
Germany – ZEW Business Confidence Index
US – Inflation (Consumer Prices)
Wednesday
Germany – Inflation (Consumer Prices)
Thursday
UK – GDP & Industrial Production
EU – GDP
US – Unemployment claims, Inflation (Producer prices), Retail sales and Industrial Production
Friday
US – University of Michigan consumer sentiment survey
What’s in the news?
The BoE (Bank of England) as widely expected cut UK interest rates on Thursday by 0.25% to 4.25%. Less expected was the three-way vote in the MPC (Monetary Policy Committee) with five members voting for a 0.25% cut; two voting for a 0.5% cut and two voted for no change. The forward guidance was largely unchanged and still points to ‘gradual’ and ‘careful’ rate cuts remaining appropriate. The financial markets scaled back rate-cut expectations. The next 0.25% reduction is now expected in August (not June).
How far will interest rates fall?
UK
Polling expert Sir John Curtice shared his thoughts on the local election results from the 1st of May elections that saw Reform UK win control of 10 councils, the Liberal Democrats three, and another 10 now under no overall control. Reform UK won 677 councillors, while Labour lost 186, ending up with less than 100 in the areas where votes were being cast. The Tories suffered the heaviest losses. Curtice warned both Labour and the Conservatives that their traditional dominance is under real threat, describing the results as unprecedented.
Curtice said “The truth is, the last general election, the Conservatives lost grounds very, very heavily to Reform and that’s just got worse now. But Labour also only got 35% of the vote in the last general election, they are already skating on relatively thin ice. The public frankly have not been impressed by the way in which Keir Starmer and his colleagues have run the country.”
The latest YouGov poll after Reform UK’s barnstorming results in the local elections show Reform on 29%, seven ahead of Labour on 22 and 12 clear of the Tories on 17, a multi-year low for the two old parties.
Pollster More In Common has Reform four points clear of Labour (on 27 versus 23%) in its latest survey, with the Tories languishing on 21. The previous More In Common poll had Labour and Reform neck and neck on 24%
Good news
The UK government described the UK-India trade deal as the most “economically significant” free trade agreement signed since Brexit and the “best deal India has ever agreed”.
Indian Prime Minister Narendra Modi said, “In a historic milestone, India and the UK have successfully concluded an ambitious and mutually beneficial Free Trade Agreement.” Modi added that the deal would “catalyse trade, investment, growth, job creation and innovation in both our economies.”
The UK is already a major trading partner with India, with as much as £7bn in British exports to the country in 2024, though that remains lower than India’s £10bn exports to the UK.
The UK also secured a trade deal with the US, Trump’s first since the ‘reciprocal’ tariff pause.
A new report, titled ‘Dealonomics’ by international law firm Taylor Wessing and Bayes Business School said London is still a hub for M&A (Mergers & Acquisitions) deals with the UK seeing the second highest level of dealmaking between 2018 and 2024, new research has suggested, reflecting London’s status as a key financial hub despite claims its status would be reduced post-Brexit. M&A activity in the UK hit $1.14 trillion in value over six years, coming only second to the US where a total of nearly 300 deals were valued at $1.19 trillion. Technology and energy were seen as two key areas in the economy which could see the highest level of dealmaking in the next five years.
Not so good news
Starmer faced criticism following the announcement of the UK-India trade deal after it emerged that Indian nationals on temporary visas and their firms will not have to pay ‘social security contributions’ for three years. The tax break was omitted from the UK press release on the pact and immediately provoked anger coming a month after UK firms were hit with a rise in employers national insurance contributions (NICS) that many warn will force them to slash jobs or even shut down.
The Business Secretary Jonathan Reynolds defended the agreement, saying the exemptions only apply to a “specific” type of worker, not all Indian workers in the UK. Reynolds said “We have agreed a double contributions convention with India at three years. Now this, just to be clear, is something we have with a great deal of countries already. We have 17 of these agreements with the EU, with South Korea, with the US and a whole range of partners, and what it is about is making sure when people are inter-company transfers between the UK and India – so for our people in India and Indian people in the UK – they don’t simultaneously pay into both social security systems. So I think some people are getting a little bit carried away as to what this actually means, but it means that when our people are moved by a company to India they will be paying into the UK system and not the Indian system, and when Indian people are temporarily in the UK they’ll be paying into their system and not to ours.
The S&P Global Market Intelligence report on the UK’s services sector showed the sector contracted for the first time in 18 months in April.
The Insolvency Service reported that construction sector insolvencies have reached an unprecedented level, with 840 firms entering liquidation or administration in the first four months of the year, marking a rise of over 5% on 2024. The sector accounted for 19.5% of all UK company failures in February, the highest share in three years. Rising costs, a shortage of skilled workers, and high energy prices are significant contributors to this crisis.
Construction firm insolvencies hit all-time high with 840 collapses in first four months of year
Professional services giant, EY reported that in April, UK-listed firms issued 26 profit warnings, a rise from 21 in the same month last year, with half attributing their struggles to US tariffs and global trade disruptions.
Cebr (Centre for Economics and Business Research), a leading consultancy reported that Chancellor Rachel Reeves’ decision to remove tax exemptions for non-doms will not boost the public finances and may instead lead to “billions” in losses from the public purse. Cebr said that the average non-dom paid 21 times more income tax than the median income earner and contributed far more in national insurance contributions and capital gains taxes than the average Brit. Lower tax receipts as a result of an exodus of non-doms would add extra strain to public finances after Reeves raised taxes on employment and made vast cuts to welfare in order to maintain her small £9.9bn fiscal headroom.
Harbour Energy, the largest oil and gas producer in the North Sea blamed the Energy Profits Levy and a challenging regulatory environment for its decision to cut a further 250 jobs in Aberdeen. Harbour’s decision was described as a “devastating blow” by the AGCC (Aberdeen and Grampian Chamber of Commerce).
Premium Credit, the UK’s leading insurance premium finance company reported that more than half (52%) of SMEs are concerned about tax rises with 13% very concerned and are planning pay and recruitment freezes in response to government tax rises including higher employer National Insurance contributions.
The NIESR (National Institute of Economic and Social Research), Britain’s oldest independent economics research institute said Reeves is to blame for the UK’s sluggish growth prospects, warning that tax rises have left the economy in a “risky and vulnerable position.”
USA
Jerome Powell’s Federal Reserve opted to keep the Fed funds target rate range unchanged at 4.25-4.50% and indicated that the current uncertain environment means the Fed cannot provide guidance around further cuts.
The chance of a June rate cut fell from 30% to 20% after Powell’s statement.
US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer are in Switzerland until 12 May for trade negotiations with China chaired by Vice Premier, He Lifeng. Bessent stated that de-escalation will be the topic of the conversations. China and the US share interests, and the US only wants to divorce from China in a few key areas, not in terms of trade.
USA – China are getting a divorce – Cosmos Currency Exchange
Bessent’s boss, President Donald Trump said an 80% tariff rate on China (from the current 145%) ‘seems right’ ahead of the US-China talks.
The EU
The European Commission has launched a public consultation on a list of EUR €95 billion worth of US imports potentially subject to tariff countermeasures.
Last Tuesday, German MPs held what should have been a formality of a secret ballot to elect the country’s next leader as the leader of the centre-Right CDU (Christian Democratic Union) party and its coalition allies had already agreed that Friedrich Merz would lead the coalition government. In an unprecedented sign of dissent, Merz fell short of the majority required to become Chancellor by six votes. The German media speculated that some CDU politicians rebelled due to policy disagreements with Merz. CDU sources said there would be no second round of voting this week, meaning Merz would not be appointed as German Chancellor this week.
Merz remains Germany’s Chancellor-in-waiting later ordered that all migrants will be prevented from crossing Germany’s land borders illegally, even if they claim asylum.
Others
Anthony Albanese, leader of Australia’s incumbent Labor Party secured a landslide victory in last week’s Federal elections, winning 91 seats in the House of Representatives, the party’s best-ever performance at the federal level and a significant jump from 77 in 2022. Labour now commands a sizeable majority in the 150 seat Senate, enabling the passage of key policies, including doubling the tax rate on superannuation earnings above AUD $3 million and AUD $18 billion in household tax cuts. Fiscal policy will remain highly stimulatory, supporting economic growth. Peter Dutton, the former opposition leader and head of the Liberal Party, lost his seat.
Australia posted the highest three-month run of exports to the US as Trump’s tariff policies triggered a rush to buy gold, resulting in a goods surplus of AUD $4.1 billion with the US in the three months leading up to March, after a deficit of AUD $6.2 billion in the previous year.
Chinese Caixin Services PMI for April was significantly lower than forecast and service provider optimism fell to the second-lowest level ever recorded.
China’s outbound shipments to the US plunged over 21% in April year on year, while imports dropped nearly 14%. This was partially offset by a surge in Chinese exports to Southeast Asian countries.
Warren Buffett, the world’s most famous investor, said he planned to step down from the helm of his sprawling conglomerate Berkshire Hathaway, a financial juggernaut that he has built up over the past six decades.
Quote
Philip Hammond, former UK Chancellor, “While I believe firmly in open markets and free trade, I also believe an open market needs a level playing field.”
