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One year of Labour... Will Trump row back on tariffs?
7 July 2025
7 minutes
Stock Take
Labouring on – are prospects gloomy or bright?
After 12 months in power, Labour has had some difficult times – not least in recent weeks. Rebellions by MPs have seen the government back down on winter fuel payments and, more damagingly, do a U-turn on welfare cuts. These decisions have significantly increased the prospect of steep tax rises in the Autumn Budget.
Last week Chancellor Rachel Reeves was visibly upset in the House of Commons. This led to rumours that she was going to be sacked or resign. In response, the pound fell in value and the cost of government borrowing soared in the form of rising gilt yields. However, once it was clear that Reeves would be staying as chancellor, markets reacted positively – bond prices quickly rose again while bond yields fell.Greg Venizelos, SJP’s Fixed Income Strategist, says the speed of the market reaction seemed to be in response to the uncertainty caused by the chancellor’s distress.
“Markets were wondering who would come next as a chancellor and that uncertainty can be unsettling. Ultimately it comes down to feedback on what government is doing. The government has been given the message that it needs to follow prudent actions, as the markets are watching.”
Few would disagree that the chancellor has a difficult role to play. As well as a tough domestic backdrop, global volatility such as unexpected tariffs or economic slowdowns elsewhere can have a knock-on effect on the UK.
But in positive news, the UK economy is likely to have grown in the second quarter, despite economic pressures. The June purchasing managers’ index highlighted a rise from 50.1 in May to 52 in June. This indicates economic expansion.
And while higher taxes are likely to be on the horizon, the stability of having a consistent government can help to underpin the economy, and support the value of bonds to some degree.
Greg says: “On balance the factors may be pointing towards lower bond yields going forward. If the government brings in more taxes and there is an adverse impact on growth, then this could also push inflation lower. This would mean the Bank of England could have more room to cut rates, potentially bringing down the cost of government borrowing.”
And there are other reasons to be positive. Justin Onuekwusi, SJP’s Chief Investment Officer, says: “The first year of this government has brought stability for markets and investors, underpinned by a clear, pro-growth tone and a willingness to engage with business.”
But it is what comes next over the coming months that will really seal the verdict on Labour’s return to power for investors and businesses.
Adds Justin: “Regulatory clarity from a growth-oriented government is essential as it gives businesses and consumers confidence and encourages long-term investing. Leveraging regulation to support better investment decisions, particularly in the UK market, could unlock capital that fuels sustainable growth. However, markets also value fiscal credibility. Any move away from fiscal rules risks unsettling bond investors, especially at a time when global debt is rising and uncertainty is weighing on bond markets. Staying the course on fiscal discipline will help reinforce market confidence.
“Investors want predictability on regulation, on tax, and on the broader economic direction. Striking the right balance between reassurance and realism will be crucial. Recognising the role of the private sector in delivering growth will give the government more levers to pull. In a volatile global landscape, the UK has a real opportunity to lead by creating the certainty that investors and businesses need to plan and grow.”
Tariff uncertainty
Countries who have yet to agree a trade deal with the US may be sitting nervously right now. There are just two days left before the 90-day pause in US-imposed tariffs is due to end.
To date, the UK and Vietnam are the only countries to have signed a trade agreement with the US. Despite the difficult start to the relationship, China is reported to be close to a deal. Europe is not thought to be near.
Yet unsurprisingly there is confusion about what will happen and when. On Sunday President Trump announced letters would be sent out today to countries trading with the US, setting out the tariffs to be levied. He said countries would either receive a letter or have agreed a trade deal by Wednesday of this week. However, this was followed by Howard Lutnick, the US commerce secretary, saying that tariffs would not come into actual effect until 1st August.
Yet in another contradictory move, Trump this weekend threatened to levy an extra 10% tariff on any country that aligns itself with the BRICS group of nations (Brazil, Russia, India, China, South Africa plus others). This was on the grounds that BRICS are ‘anti-American’.
The International Monetary Fund has estimated that Trump’s tariff policies could shave 0.5% off global economic growth next year. In the near term, higher import costs could drive up inflation and squeeze US consumers. There would likely be an impact on growth and this would create a negative backdrop for US treasuries too.
The suggestion therefore that tariffs may not come into effect until 1st August could offer some relief to markets. It also potentially provides more time for trade deals to be agreed, or even for Trump to retreat from imposing some tariffs at all.
Despite the volatility, the S&P500 and NASDAQ equity indices reached new records for the second week in a row. The former delivered a weekly gain of +1.7% and the latter +1.6% in US dollar terms.
This followed publication of the latest US job figures, which showed 147,000 new jobs were added in June. This exceeded estimates by nearly 40,000.
Is the US economy like Teflon – immune to the external chaos? While US markets seem resilient, there is no doubt the uncertainty is adding to the nervousness of investors. And it seems likely to continue, says Justin.
“With the 90-day pause on reciprocal tariffs nearing its end, further volatility seems likely. While the UK has made progress on trade deals, the outlook for a comprehensive EU-US agreement remains uncertain. Meanwhile, negotiations with China remain complex and unresolved.
“Despite the headlines, the relationship between politics and equity markets is more nuanced than often portrayed. While political events can trigger short-term market movements, it’s valuations that tend to drive performance over the long term. In this environment, staying focused on long-term goals is key.”
Other markets
In Europe, the MSCI Europe ex UK index retreated by -0.4% (local currency). Across the Channel, the FTSE100 added +0.3%. A small uptick in consumer price inflation (CPI) in Europe may have prompted some selling pressure as investors assessed the future path for interest rates on the Continent.
In Asia, the Nikkei 225 in Japan declined by -0.9% (in yen)) as trade negotiations with the US stalled. As for China, the Shanghai Composite recorded a +1.4% gain (local currency) with the latest round of Purchasing Manager Indices (PMIs) painting a mixed picture of the economy.
Wealth Check
The below is an edited version from our latest CIO Insight. Speak to us today to read the full version
Red caps, price traps: the US concentration conundrum
What is happening with US politics? What will the volatility mean for investments and US holdings?
The geopolitical picture appears to change daily, much of it driven by decisions made by President Trump. Many of which he later retracts or reverses. Markets have moved up and down as announcements and then concessions are made. The breakout of the recent Iran conflict saw markets move less but they still reacted. This can all be unnerving for investors to say the least.
Red caps: Rising uncertainty and politics
Trump is nothing if not a populist. And behind many of his decisions lie the sentiment ‘Make America Great Again’. These are the words you see on many red baseball caps at Trump rallies and in media coverage, and which resonate with millions of US voters.
Take the tariffs, which have swung from one direction to another and back again. The aim of these is ostensibly to reduce any trade deficits between US and other countries. The thinking being US companies have been at a disadvantage compared to their counterparts in other part of the world, because of tariffs they face exporting goods and services. By imposing tariffs on foreign-produced imports to the US, it will make US-produced goods more attractive to US consumers – so the argument goes.
Yet while tariffs may temporarily reduce trade deficits, they also cause potential economic harm. While we don’t have unfettered confidence in anyone’s ability to make economic forecasts, The International Monetary Fund has estimated Trump’s tariffs could reduce global economic growth by 0.5% next year. Meanwhile, in the short-term, the tariffs could push up costs for US consumers too, causing inflation to rise.
With Trump’s 90-day pause on reciprocal tariffs due to end imminently (July 9th), it looks highly likely that more volatility lies ahead. While the UK has secured some deals, it remains to be seen whether Europe will reach a beneficial trade deal with the US. All is still to play for where China is concerned too.
Meanwhile tensions remain high in the Middle East, despite a fragile ceasefire between Israel and Iran (at the time of writing). The Russian president has also taken advantage of the geopolitical focus being elsewhere to intensify attacks on Ukraine, with that war still very much ongoing.
Despite this gloomy backdrop, the latest US consumer sentiment figures show people are feeling slightly more positive about the economy. According to the University of Michigan’s consumer sentiment index published in June, Americans’ view of the economy has improved for the first time in six months.
Yet that is in the US. For the rest of the world, US policy is still raising questions – and uncertainty – for investors, as I see all too clearly when meeting with clients. What’s next? That’s the hard part. What will lead the markets up – or down – amid such unpredictability? And where does that leave us as investors?
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Red caps, price traps: the US concentration conundrum
What is happening with US politics? What will the volatility mean for investments and US holdings?
The geopolitical picture appears to change daily, much of it driven by decisions made by President Trump. Many of which he later retracts or reverses. Markets have moved up and down as announcements and then concessions are made. The breakout of the recent Iran conflict saw markets move less but they still reacted. This can all be unnerving for investors to say the least.
Red caps: Rising uncertainty and politics
Trump is nothing if not a populist. And behind many of his decisions lie the sentiment ‘Make America Great Again’. These are the words you see on many red baseball caps at Trump rallies and in media coverage, and which resonate with millions of US voters.
Take the tariffs, which have swung from one direction to another and back again. The aim of these is ostensibly to reduce any trade deficits between US and other countries. The thinking being US companies have been at a disadvantage compared to their counterparts in other part of the world, because of tariffs they face exporting goods and services. By imposing tariffs on foreign-produced imports to the US, it will make US-produced goods more attractive to US consumers – so the argument goes.
Yet while tariffs may temporarily reduce trade deficits, they also cause potential economic harm. While we don’t have unfettered confidence in anyone’s ability to make economic forecasts, The International Monetary Fund has estimated Trump’s tariffs could reduce global economic growth by 0.5% next year. Meanwhile, in the short-term, the tariffs could push up costs for US consumers too, causing inflation to rise.
With Trump’s 90-day pause on reciprocal tariffs due to end imminently (July 9th), it looks highly likely that more volatility lies ahead. While the UK has secured some deals, it remains to be seen whether Europe will reach a beneficial trade deal with the US. All is still to play for where China is concerned too.
Meanwhile tensions remain high in the Middle East, despite a fragile ceasefire between Israel and Iran (at the time of writing). The Russian president has also taken advantage of the geopolitical focus being elsewhere to intensify attacks on Ukraine, with that war still very much ongoing.
Despite this gloomy backdrop, the latest US consumer sentiment figures show people are feeling slightly more positive about the economy. According to the University of Michigan’s consumer sentiment index published in June, Americans’ view of the economy has improved for the first time in six months.
Yet that is in the US. For the rest of the world, US policy is still raising questions – and uncertainty – for investors, as I see all too clearly when meeting with clients. What’s next? That’s the hard part. What will lead the markets up – or down – amid such unpredictability? And where does that leave us as investors?
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
In The Picture
A calm, steady approach to investing and financial planning has never been more important. When President Trump unleashed a series of shocks on the global economy earlier this year, it would have been easy to panic – the worst possible response.
Fortunately, as you’ll see in this issue of The Investor, we’ve avoided knee-jerk reactions. Fund managers describe how they are continuing to focus on the fundamentals of investing: long-term thinking and portfolio diversification. These are sound principles for everyone to follow.
Elsewhere in this issue of The Investor, there’s great advice for anyone with a portfolio career or thinking of switching to one, particularly on pensions and retirement planning. Plus, we have a range of celebrities sharing the best advice they’ve ever had, making us think about the times we’ve benefited from others’ expertise, not least financial advice!
Fortunately, as you’ll see in this issue of The Investor, we’ve avoided knee-jerk reactions. Fund managers describe how they are continuing to focus on the fundamentals of investing: long-term thinking and portfolio diversification. These are sound principles for everyone to follow.
Elsewhere in this issue of The Investor, there’s great advice for anyone with a portfolio career or thinking of switching to one, particularly on pensions and retirement planning. Plus, we have a range of celebrities sharing the best advice they’ve ever had, making us think about the times we’ve benefited from others’ expertise, not least financial advice!
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Past performance is not indicative of future performance.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.
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SJP Approved 07/07/2025
