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The world has been reeling after US President Trump’s “tariff war” in early April 2025. California has just sued over the levies, and the Federal Reserve (the Fed) has warned that US tariffs on China (now standing at 145%) will likely stoke US inflation and keep interest rates higher.
With trade between the world’s two largest economies now effectively at a standstill, what are the implications for your financial plan here in the UK? Below, our Carlisle financial advisers offer some reflections to help you keep a sense of calm perspective amidst the uncertainty.
What is happening with the tariffs?
To catch everyone up, a “tariff” is a tax on imported goods. For instance, on 2 April 2025, US President Trump introduced a new 10% tariff on British goods imported to the USA. This means that American consumers will now pay at least 10% more for UK-sourced products, such as cars made by Jaguar Land Rover (which has temporarily halted exports to the USA).
The 10% rate is relatively low compared to other US tariffs announced by Trump on “liberation day”. The EU faced a 20% rate, Taiwan a 32% rate, and Vietnam 46%. However, markets reacted sharply in April in response to falling economic indicators.
To stabilise the landscape, Trump announced a 90-day “pause” on the previous tariffs imposed on 2 April. Now, all countries (except China) face a “base” tariff of 10%.
How might this affect me?
Most economists believe the US tariffs will harm America’s economy. JP Morgan now estimates a 60% likelihood of recession in 2025 (up from 40% at the start of the year). The UK is forecast to avoid a recession this year, but it is still possible, and growth is expected to be weak.
However, the sheer size of America’s economy means that a recession would have significant knock-on effects elsewhere in the world. UK sectors could be hit, especially those heavily reliant on U.S. demand (like aerospace and luxury goods). This could widen the UK’s trade deficit and weigh on GDP growth.
Demand for UK exports such as machinery, pharmaceuticals and financial services could also fall (the U.S. is one of the UK’s largest non-EU trading partners). For people in the UK, possible repercussions might include:
- Stock market instability. Many FTSE 100 companies generate revenues from the US (or overseas markets denominated in US dollars). A contraction in the US could lead to lower corporate earnings, hurting short-term growth.
- Currency fluctuations. If the US dollar weakens in 2025 (e.g. if the Fed cuts rates aggressively), the British pound – GBP – could rise in value. However, the pound could fall if the dollar strengthens, perhaps due to capital flight to perceived “safe-haven” assets like U.S. Treasuries. Currency movements could affect how much GBP you can convert to other currencies (e.g. before travelling abroad) and might affect prices for imported goods to the UK, such as electronics.
- Investment flows. For entrepreneurs and those interested in early-stage investing, any weakening of confidence in the US could cause US companies and investors to scale back investments in the UK – slowing growth plans as financing becomes tighter.
- Inflation and interest rates. If Trump’s tariffs push up inflation in the UK, this could lead the Bank of England (BoE) to hold interest rates higher, for longer. The BoE is expected to make four cuts over the next 12 months, potentially taking the base rate to 3.5% next year. However, these forecasts are highly uncertain. The BoE may be forced to cut more aggressively to boost growth, or hold off on cuts to keep the price level under control.
What can I do to prepare?
Nobody knows for sure how the markets and economy may be affected by tariffs in 2025. The best approach, as always, is to prepare for negative outcomes whilst hoping for positive ones.
For instance, if prices get higher in the UK (e.g. due to cost-push inflation), make sure your budget can handle a rise in costs. Could you switch from US goods to cheaper ones sourced elsewhere? If you plan to travel overseas, is it worth making certain purchases ahead of time whilst exchange rates are favourable (e.g. flights)?
Check your emergency fund and aim to cover 3-6 months of essential expenses in case of economic disruption or job risk. If you haven’t reviewed your investments for a while, consider approaching a financial adviser to ensure you are well diversified.
To discuss your financial plan with an expert at Vesta Wealth, please get in touch to arrange a free, no-commitment consultation with a financial adviser here in Cumbria.
Your capital is at risk. Investments can go down as well as up. Past performance is not indicative of future results. Tax treatment depends on individual circumstances and may change. Content is for information only and not investment advice. Any decision to invest is the reader’s own. Diversification is key to managing risk. Market volatility affects investment values. Inflation erodes savings. Liquidity risks may prevent quick access to funds.