Week ending 9th May 2025.

Global markets offered a mixed but ultimately encouraging picture this week, as investors digested key developments across trade, and central bank policy. At the heart of market attention were the latest interest rate decisions from the Federal Reserve and the Bank of England.

As we highlighted in our mid-week update, the Federal Reserve held interest rates steady at 4.25%–4.5%. Policymakers noted that “economic activity has continued to expand at a solid pace,” and signalled a patient, data-driven approach amid evolving economic dynamics, including the Trump administration’s sweeping policy reforms.

On the other hand, policymakers at the Bank of England narrowly voted 5–4 in favour of cutting interest rates rather than holding them steady. Interest rates were reduced by 0.25 percentage points, bringing the key rate down to 4.25%. This move, which was largely anticipated, reflects the Bank’s ongoing strategy of supporting economic growth while navigating uncertainties in the global economic landscape. Governor Andrew Bailey and his colleagues have been closely monitoring the potential impact of global trade disruptions, particularly in the context of ongoing geopolitical tensions.

Lower interest rates typically help boost consumer activity by easing borrowing costs such as mortgage payments—a potential positive for sectors like housing and retail. Investors will now be keeping a close eye on whether further rate cuts are on the horizon in the months ahead.

In a welcome development on the trade front, the UK struck a meaningful agreement with the US, offering relief to some exporters. The deal includes the removal of a 25% tariff on UK steel and aluminium, along with a cut in tariffs on British-made cars—from 27.5% down to 10% on the first 100,000 vehicles. Additionally, British beef exporters have secured access to the lucrative US market. While not a game-changer for the entire economy, as most sectors will still face the baseline 10% tariffs, this progress delivers tangible benefits for several key industries.

Further ahead, trade diplomacy remains active. A UK-EU summit next week may produce a new agreement, while ongoing negotiations with India could yield additional opportunities for the UK post-Brexit

Turning to China, April export figures surprised to the upside with an 8.1% year-on-year increase—well above expectations. However, this marked a slowdown from March’s 12.4% surge, as renewed U.S.-China trade tensions weighed on shipments to the U.S., which dropped by 21%. Still, optimism prevailed in Chinese equity markets, buoyed by news of upcoming US–China trade talks in Switzerland and fresh stimulus from the People’s Bank of China, which announced an interest rate cuts earlier in the week. Any signs of progress or a thawing of tensions between the two economic superpowers would provide a welcome boost to global financial markets, which remain highly sensitive to the tone of U.S.-China relations.

Key economic data in the coming week includes U.S. inflation, UK retail sales, unemployment, and Q1 GDP, as well as industrial production figures. Japan’s Q1 GDP is also due. Markets will be particularly attentive to comments from Fed Chair Jerome Powell, who is scheduled to speak at a conference in Washington, D.C.

Kate Mimnagh, Portfolio Economist