Global demand for British goods has suffered its biggest downturn since the height of the pandemic as Donald Trump’s trade war takes its toll.
The UK’s beleaguered manufacturing sector has now been shrinking for seven months in a row, according to figures from a closely-watched business survey.
It comes as speculation grows that the Bank of England will step up the pace of its interest rate cuts as
‘insurance against Donald Trump’s erratic behaviour’.
US investment bank Morgan Stanley is predicting five more cuts this year, taking Bank rate down to 3.25 per cent by the end of 2025 from 4.5 per cent today.
Yesterday, the purchasing managers’ index (PMI) figures for manufacturing gave a reading of 45.4 for April, the seventh month in a row that it has been below the 50-mark that separates growth from contraction.
Rates: US investment bank Morgan Stanley is predicting five more cuts from the Bank of England this year, taking Bank rate down to 3.25% by the end of 2025 from 4.5% today
In effect, the data shows Britain’s factories are in recession.
New export business fell at the quickest pace since May 2020, when the global economy was in the grip of the Covid pandemic, according to the survey by financial data firm S&P Global.
Orders from the United States, Europe and China fell, the PMI data showed.
‘Overseas demand is especially weak,’ said Rob Dobson, the director at S&P Global Market Intelligence.
He added: ‘Manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility.’
At the same time, firms are being squeezed by Labour’s decision to hike employer national insurance and sharply increase the minimum wage.
Higher costs are resulting in higher selling prices and job cuts, with employment declining for the sixth month in a row.
Business confidence among manufacturers was at the lowest ebb since November 2022, in the aftermath of Liz Truss’s disastrous mini-Budget.
It is the latest sign that the UK economy, already reeling from Labour’s tax hikes, faces an even tougher time thanks to US President Trump’s tariffs.
And it comes before the Bank of England’s interest rate decision next Thursday, which will appear alongside a quarterly assessment of the economy.
Back in February, it halved its forecast for growth this year.
The coming report seems likely to provide a further grim reassessment as officials count the cost of the trade wars.
Markets are betting that the likely weakening of the economy will mean two interest rate cuts in a row in May and June, and another two by the end of the year, taking the base rate down to 3.5 per cent.
‘That’s insurance against Donald Trump’s erratic behaviour,’ said Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics.
Experts will closely scrutinise the Bank’s language next week for clues as to where it goes next.
Morgan Stanley economists said it was likely to remove the term ‘gradual and careful’ from its guidance on rate cuts ‘to leave itself space to accelerate cuts if needed’.
‘We continue to see the Bank rate at 3.25 per cent by year-end,’ they added.
Clarkson shares sink
Shares in shipping broker Clarkson plunged 8.8 per cent after it said profits would be hit by the trade war.
The London-listed firm said uncertainty over ‘the potential of a global trade war has escalated’.
Shipping rates in dollar terms were 7 per cent lower than it anticipated in March and a fall in the value of the US dollar could knock £9.5million off earnings when its income is translated into pounds.
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