Double shot of stimulus: Will a rate cut and tariff truce ignite the UK economy?

Tariff thaw: a lifeline for steel and autos

Just hours later the UK received a second boost when President Trump announced a UK–US trade deal rolling back parts of last month’s sweeping tariff package. The 25 per cent duty on British steel disappears entirely, while levies on UK-built cars drop from 27.5 per cent to 10 per cent on the first 100,000 vehicles shipped stateside – covering virtually all car exports last year. Although a 10 per cent charge still applies to aluminium and most other goods, further talks are scheduled, and the rollback should save thousands of jobs in both industries. It is hardly the full-scale free-trade agreement the UK once enjoyed with the EU, yet it still goes further than concessions granted to any other nation so far.

Market take-away: sterling steady, cuts still priced

Gilt yields ticked higher after the MPC news, with traders now pricing 57 basis points of further easing – likely 25-point moves in August and November – compared with 69 points beforehand. In ‘normal’ market conditions that shift would normally support the pound, but sterling’s modest climb appeared instead to draw strength from optimism surrounding the tariff deal, which had been well signposted and therefore produced limited fireworks.

Outlook: cautious on cuts, constructive on the pound

Our stance on rates remains largely unchanged. We still suspect markets are over-estimating the scale of BoE easing while service-sector inflation remains stubborn, though the MPC must weigh that against mounting growth risks. For sterling, a “higher-for-longer” profile should be supportive, yet near-term moves will depend chiefly on how the dollar responds to President Trump’s ongoing global negotiations. We therefore keep our bearish USD view, which underpins a bullish outlook for GBP-USD and a moderately positive bias towards GBP-EUR, unless Washington extends similar tariff relief to Brussels – an outcome that still looks improbable.