UK
Tariffs take the limelight: UK share prices fell during March as investors became increasingly jittery about the prospect of a global trade war ahead of an expected swathe of worldwide US trade tariffs scheduled to take place on 2 April. The FTSE 100 Index fell by 2.6% over March, while the FTSE 250 Index dropped by 4.2%.
BoE warns on tariffs: Appearing in front of the Treasury Select Committee during the month, Governor of the Bank of England (BoE) Andrew Bailey warned that the risks posed by tariffs to the UK and world economy are “substantial” and could result in UK consumers having less money in their pockets. The BoE left its key base rate unchanged at 4.5% at its March meeting. The BoE said that uncertainty over global trade policy had “intensified” and also highlighted an increase in the number of firms pausing or freezing hiring plans ahead of April’s increase in employers’ National Insurance contributions (NICs).
Lower economic growth: having expanded by 0.4% in December, the UK economy shrank by 0.1% in January, primarily due to a decline in manufacturing activity. The Organisation for Economic Cooperation & Development downgraded its UK growth forecast from 1.7% to 1.4% in 2025, and from 1.3% to 1.2% in 2026. Elsewhere, the British Chambers of Commerce cut its growth forecast for the UK this year from 1.3% to 0.9%, citing “severe pressures piling up on businesses right now”, including the “double whammy” of higher taxes and a potential global trade war.
Spring Statement: the Chancellor of the Exchequer’s Spring Statement included additional cuts to welfare spending and an increase to defence spending. The economic growth forecast for this year was halved from 2% to 1% and the Office for Budget Responsibility raised its 2025 inflation forecast to 3.2%. Inflation is expected to reach its 2% target in 2027. The government’s budget deficit3 will be £36.1 billion in 2025-26, falling to £13.4 billion in 2026-27 and reaching a surplus of £9.9 billion by 2029-30.
Inflationary pressures set to build? The annualised rate of consumer price inflation fell from 3% in January to 2.8% in February, dampened in part by lower prices for clothing and footwear. Looking ahead, however, the cost of living is set to rise from April against a backdrop of higher household bills and an increase in employers’ NICs.
Global
Market turmoil: the trade wars waged by US President Donald Trump continued in March amid fresh announcements of levies on imports including cars and car parts, and steel and aluminium. President Trump warned of sweeping “reciprocal” tariffs to be announced on 2 April – ‘Liberation Day’. Global markets generally fell heavily in March amid fears of a worldwide trade war that could stoke inflation, hit corporate profits, and possibly lead to a US recession. The Dow Jones Industrial Average Index fell by 4.2% over the month, while the Nasdaq Index dropped by 8.2%; meanwhile, the price of gold – often regarded as a safe haven during periods of uncertainty – reached a fresh all-time high.
“Further fragmentation of the global economy is a key concern” said the Organisation for Economic Cooperation & Development (OECD), which revised down its US growth forecast from 2.4% to 2.2% this year, and from 2.1% to 1.6% next year. The OECD slashed its growth forecast for Canada this year from 2% to just 0.7% and predicted that Mexico’s economy would fall into recession. Germany’s 2025 forecast was downgraded from 0.7% to 0.4%, while France was trimmed from 0.9% to 0.8%.
ECB cuts rates again: against a backdrop of mounting uncertainty about the US, European equities performed relatively well in March, buoyed by plans to ramp up defence spending and another cut in the eurozone’s key interest rate. The European Central Bank (ECB) cut rates by 25 basis points to 2.5%, but downgraded its economic growth forecasts for the euro area, which is now expected to grow by 0.9% this year and 1.2% next year, citing “lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty”. The Dax Index fell by a comparatively muted 1.7% over the month.
China bucks the trend: the Bank of Japan maintained its key interest rate at 0.5% in March and highlighted “high uncertainties … including the evolving situation regarding trade.” The Nikkei 225 Index fell by 4.1%. Elsewhere in the region, China set a growth target of “around 5%” for its economy this year and, in the face of an intensifying trade war, pledged to make domestic demand the “main engine and anchor” of economic growth. The Shanghai Composite Index bucked the global trend during March, rising by 0.4%.
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