Closing summary: Tariffs and weak retail sales cast a shadow
US retail sales slumped and steep tariffs from the White House may be in the works. Perhaps things might not go so well for the global economy in the next few months?
James Knightley, chief international economist at ING, an investment bank, said it was a “subdued start to 2025 in the US economy. Blame it on the weatherman? Certainly fires in Los Angeles and cold weather elsewhere may have affected consumer spending. But maybe there’s something else, he asked:
Could tariff worries also have played a role?
In trying to rationalise this outcome, we know that consumer confidence did fall quite a lot in January, largely on a sense that prices were going to rise on tariffs (big rise in price expectations and the responses showing it was going to be a worse buying environment for big ticket items – which are often imported).
We will need to wait until the February data to see if this is the start of a more cautious consumer trend or indeed whether it was simply a weather-related pull back and we get a subsequent big gain.
Modupe Adegbembo, an economist at Jefferies, a US investment bank, said
Our view remains that tariffs are a negotiating tool and while some tariffs will be imposed, the eventual impact will not be as bad as feared. To put some numbers, a 20% tariff on Europe could potentially reduce European GDP by as much as 0.5%. We think that the eventual impact would be smaller, of the order of 0.1% — 0.2%.
For the UK, it is the mention of tariffs including VAT retaliation that has sent shivers down spines. The UK is a relatively low-tariff nation, but it has higher VAT (on all sales, both from home and abroad) than many other nations, so could be in line for a bigger hit of up to 24% if the US adminstration takes the headline rate.
Paul Dales, chief UK economist at Capital Economics, said:
We can’t stress enough how much uncertainty there is about the tariffs and what they would mean for the UK economy.
[However,] we’ve learnt from Trump’s first four weeks in office that things can change very quickly and often threats don’t turn into action. It’s very possible that the proposed tariffs will be moderated or cancelled. As a result, at this stage we aren’t minded to alter our existing assumption that the UK will face a lower US tariff of 10% on all goods from Q2 this year.
In other business headlines from today:
Thames Water is to appeal to the UK’s competition regulator to be allowed to raise customers’ bills over the next five years even higher than previously granted, prompting a furious reaction from campaigners.
NatWest wants to increase its chief executive’s maximum pay by more than 40%.
Baby formula should be placed in standardised packaging in hospitals and parents allowed to use gift vouchers and loyalty card points to buy formula milk, the UK competition watchdog has proposed.
Pressure is growing on the Royal Society to expel Elon Musk from its fellowship after more than a thousand scientists signed an open letter expressing dismay at its lack of action on the matter.
The owners of the multibillion-pound James Bond franchise are embroiled in a fight to keep control of the super spy’s name, after a Dubai-based property developer filed claims in the UK and Europe that they are not using the trademark across a range of goods and services.
You can continue to follow our live coverage from around the world:
No 10 says Starmer and Trump spoke last night as minister calls for ‘clear thinking’ on tariff threat
European leaders scared of voters and failing to defend democracy, Vance tells security summit
In US politics, the Trump administration sparks outcry as it continues to gut federal workforce
In our coverage of the Middle East crisis, Hamas announces further details of Israelis it will free this weekend
Thank you for following today. Please do join us again, bright and early, on Monday for more of the same. JJ
As expected, it has been a relatively benign opening on Wall Street.
Here are the opening snaps, via Reuters:
S&P 500 UP 3.35 POINTS, OR 0.05%, AT 6,118.42
NASDAQ UP 9.95 POINTS, OR 0.05%, AT 19,955.59
DOW JONES DOWN 1.47 POINTS, OR 0.00%, AT 44,709.96
