Ear to the Ground

23 May 2025

UK inflation initially caught the market by surprise this week.  The consumer price index had been forecast to post a year on year increase of 3.3% to April but instead came in at a stronger 3.5%.  Retail price inflation was also higher than expected at 4.5%.  Once time had been taken to digest, however, the reasoning behind the figures were more palatable.  There was a sharp rise in electricity prices after the higher Ofgem energy price cap was introduced in April.  Furthermore, we also saw the introduction of road tax duty on electric cars, both old and new.  You could argue, therefore, that it was most certainly not demand driven.  Since the end of April we have seen a reduction in interest rate cut expectations for the UK, but it is still more than forecast earlier in the year.

In the US, whilst there has been a plethora of economic data released there has been little to move the market.  The latest soft data, in the form of the latest purchasing manager index surveys, painted a rosier picture.  The manufacturing index came in above expectations, implying expansion in the sector, as did that for the service sector, painting a better picture for the economy overall. 

Heading into a long weekend, however, it would have been nice to relax into it.  Instead, President Trump has clearly become irritated with the lack of progress being made with Europe regarding trade deals and tariffs.  European bureaucracy can mean that decision making is a longer process, and he has clearly decided to try and hurry them along.  From the 1^st of July he has proposed that EU imports into the US are subject to a 50% tariff.  As you can envisage, equity markets have not taken to this kindly.  UK and US indices have seen some recovery after an initial sell off.  At the time of writing, however, the EStoxx50 index of Europe is down 1.8% on the day. 

Will the European’s be quicker to reach a decision around the meeting table and negotiate with the US as a result?  Only time will tell.