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Aldermore’s Head of Economics, Thomas Broom, explains the potential impact of tariffs, globally and at home.
We continued our 2025 programme of Get More from Aldermore webinar sessions in April with an economic update from Aldermore’s own Thomas Broom, Head of Economics.
The session fell just days after Trump's ‘Liberation Day’ announcement, which sent markets spinning, and hours before he pressed a 90-day pause on his plans. This current volatility perfectly highlighted Thomas's opening message: don’t believe anyone who tells you they have high confidence in their economic forecasts right now.
Here’s what else we learned in this month’s session:
Financial markets have been hugely volatile, but we can still cut through the noise on tariffs and their economic implications, particularly for the UK.
First, what are they and how do they work?
A tariff is a tax imposed on imported goods, paid by the importer – and so it is US businesses who face the higher tax of Trump’s tariffs. Experience from the cost-of-living crisis suggests businesses often initially tend to pass any new costs onto consumers, therefore raising prices. This can lead to higher inflation and lower economic growth, because fewer people want to buy the goods at a higher price.
While the exporter doesn’t pay the tariff, they still face a tough decision. Do they raise their prices to protect their revenue and margins in a slower market, or do they cut prices to protect their volumes and market share by making their goods affordable even with the tariff?
The answer will depend on the goods in question and the business. But the key takeaway is that tariffs can be both inflation-positive and growth-negative. And the biggest difference between this situation and past trade wars is that the global economy is more connected than ever.
Why is this happening?
There are three main theories behind the recent tariff measures:
Some good news for the UK is that our goods trade with the US is limited – roughly 2% of our GDP – so we’re far less exposed to this global trade war than other countries. And we’re subject to the lowest 10% baseline tariff.
Thomas said he is keeping an eye out for what concessions certain countries make as we step through this process. With Vietnam and Cambodia, it could be a race to the bottom as they cut their own tariffs to get concessions, given how reliant on the US they are. But with China, the effective tariff has been rising in a tit-for-tat move that will increase inflationary pressures.
We need to be mindful of two things. The UK does about 20% of our overall trade with the US but about 45% with the EU. We are not immune to the indirect effects of the European economy slowing or the EU raising prices.
We also hope that if the UK government tries to negotiate the 10% tariff, it doesn't come at the cost of harming our services sector which is more fundamental to our economy.
It’s not going to be completely painless as we still have sectors, such as automobiles, pharmaceuticals, and scientific equipment that could see reduced demand if tariffs persist.
US and UK stocks initially fell around 15-20% from their peaks this year, less severe than during previous recessions, although they rallied on the news of Trump's 90-day pause.
Financial markets will remain volatile but Thomas is looking out for the following things:
The UK economy was already navigating complex challenges before this latest twist of Trump's tariffs.
Rachel Reeve’s Spring Statement last month had very minimal economic impact as fears of significant public sector cuts thankfully didn’t materialise.
The private sector has lagged the public sector in recent years, weighed down by rising costs and higher interest rates, and we expect that the tariffs will flatten growth. The worry is that Reeves will come back in the Autumn needing to raise taxes should our fiscal rules again risk being broken.
Inflation is expected to hover above 3% for most of the rest of the year. While energy prices are declining, overall costs are still high compared to pre-crisis levels.
Prices have actually risen about 25% over the last 5 years, so households are expected to remain cautious with spending as things still feel comparatively more expensive
The Bank of England is unlikely to be able to cut rates at pace until inflation stabilises. The consensus is for rates to settle between 3-4% by next year, but uncertainty persists.
This is the first turbulent economic period during which a five-year fixed mortgage has been the most popular. It means it takes a lot longer for changes in interest rates to feed through to the real economy.
Many homeowners are still transitioning from low-interest-rate mortgages, meaning higher repayments will continue to impact disposable income. Analysis from the Bank of England late last year suggests that half of people with a mortgage are still set to see their rate rise over the next three years.
We know that a great number of remortgages are up for renewal in the second half of 2025 and many of these borrowers may face payment shock.
Whatever happens in the wider economy, they will need a broker's help more than ever to navigate the market and minimise their costs.
At Aldermore, we are here to support brokers to do the best for their clients. You can click here to read all our latest insights and information.