The theme of this year is uncertainty. A lot has happened in the past week (which you can say about most weeks this year) but a new Pope, 80th Anniversary of VE Day, the UK-India trade deal, the BoE reducing interest rates and a new trade deal between the UK and the US was a lot for one week.
Let’s begin with interest rates. The BoE reduced interest rates from 4.5% to 4.25% which I think was fairly expected. Two members voted to move to 4% and two members voted to remain at 4.5%. CPI numbers fell from 2.8% to 2.6% in March. Slowing in the UK economy is still expected. It’s hard to tell how the market reacted to this as it was the same afternoon the UK – US trade deal was released.
Straight off the bat last week was the UK – India trade deal. There are some good and bad in there depending on who you ask. The deal will come into force in the next year.
The UK has lowered taxes on goods imported from India – this includes clothing, food products, gems and jewellery, and some cars. India has lowered taxes on goods imported from the UK – this includes aerospace, cars, alcoholic and soft drinks, food, and medical devices.
A big criticism is the National Insurance Contributions (NICs) – as part of the deal is that Indian workers that are seconded to the UK (for a short term) and their employers will be exempt from NICs for up to three years. Instead they will make payments in India and vice versa for UK workers in India. This will impact about 20,000 Indian workers in the UK.
For context around this – trade between the UK and India totalled £42bn last year. This deal is expected to boost the UK economy by £4.8bn. The UK economy is worth around £2,851bn for reference. The NICs will cost the UK £100m in revenue, but the business secretary Jonathan Reynolds said this was “less than a tenth of the £1bn in additional tax revenue the deal is expected to bring”.
This deal is more forward thinking for the UK as India is a growing country – its economy and population are one of the only countries still significantly growing. It is set to become the third largest economy and has a current population size of 1.45bn. These two facts alone are good reasons for a trade deal to be agreed now. We get exposure to India through our Asian equity and emerging market equity funds, as well as through our emerging market bond fund.
Now onto the UK – US trade deal. The UK has been fairly unscathed by the US tariffs and is seen by the market as a starting point for how other trade negotiations will go. If the UK gets an average deal then it is more worrisome for other countries which are more in the firing line. And vice versa, if the UK gets a relatively good deal then the market might view negotiations as a less volatile event.
The deal highlights:
- An end to the 25% tariff on UK steel and car imports into the US – car tariffs will reduce from 27.5% to 10% and will apply to a quota of 100,000 UK cars (the UK exported 102,000 cars to the US last year for reference). The 25% tariff on British steel is completely cut.
- New reciprocal trading rules for high-quality beef, with a quota of 13,000 tonnes.
- The ethanol tariff has been cut by the UK.
- IAG has bought 32 Boeing plans from the US following the trade deal, IAG contains airlines such as British Airways (which will receive 10 aircrafts from the 32), Vueling and Air Lingus.
There is a lot to be positive about for the UK market, of course both deals and a reduction in interest rates might generate some criticism, but in general looking forward it’s a lot clearer where the UK market stands. The UK is one of the first nations to have such a deal with both the US and India which gives businesses in the UK more certainty.
Emily Cave – Research Analyst
FPC25393
All charts and data sourced from FactSet
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