Leading Indicators | US-UK trade deal, BoE easing and UK CRE’s continued global draw

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UK AND US TARIFF DEAL SIGNALS STABILITY

The UK has become one of the first major economies to reach a post 'Liberation Day' trade agreement with the US. While the UK’s exposure to US tariffs was relatively limited, the deal brings welcome clarity in a period of wider global uncertainty. Though unlikely to materially alter the UK’s broader economic outlook, it offers meaningful relief to key sectors such as automotive and steel.

The US will maintain its 10% baseline tariff on UK goods, but the 25% tariff on cars will drop to 10% for the first 100,000 UK-made vehicles exported annually (compared to just over 102,000 in 2024). Steel and aluminium tariffs are set to fall from 25% to zero, subject to specific conditions.

Against this backdrop, the Bank of England modestly raised its 2025 growth forecast, now projecting GDP to expand by +1.00%, up from +0.75%, supported by stronger than expected Q1 figures and prior upward revisions. Its 2026 GDP forecast was trimmed only slightly, on the view that negative effects from US tariffs would likely be offset by looser financial conditions and falling energy prices.

BoE RESUMES MONETARY EASING

The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted narrowly 5 to 4, in favour of a -25bps rate cut last week, bringing the bank rate down to 4.25%. While the tone was more hawkish than markets had anticipated, the decision aligned with expectations.

Reaffirming its ‘cautious and gradual’ approach to policy, the MPC flagged external risks, particularly in the wake of newly announced US tariffs. The recently concluded US-UK trade agreement may help cushion some of these external pressures and reinforces the narrative that the UK remains relatively shielded from escalating global tariff risks, lending support to economic stability. Money markets have now priced in two additional quarter point rate cuts by year-end, which would bring the bank rate down to 3.75%.

UK CRE REMAINS NUMBER ONE TARGET, DESPITE BROADER SLOWDOWN

Despite ongoing uncertainty, the UK has once again established itself as the top destination globally for cross-border capital flows in the first quarter of 2025.

Total UK commercial real estate (CRE) investment in Q1 2025 came in at a modest £8.1 billion, down -28% year-on-year. Despite the slowdown, cross-border capital remained a key driver, accounting for 53% of total Q1 CRE volumes. While overall market activity has cooled, momentum among key international investors has noticeably rebounded in early 2025 after a more cautious approach throughout the previous year. Notably, Japanese investment surged +59% above its full-year 2024 total in just the first quarter, while Australian inflows rose by +234%, underscoring renewed appetite for UK assets from Asia-Pacific markets.

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