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28 March 2022

Market Round-Up

The US and the UK have reached a deal in which the Trump-era tariffs on UK steel and aluminium shipments will be removed in place of a quota system. Washington will suspend its 25% levy on UK steel imports up to a quota of 500,000 tonnes a year and will suspend its 10% levy on the country’s aluminium products of up to approximately 21,600 tonnes a year. These tariffs were put in place by the Trump administration in March 2018 using a 1962 trade law on the grounds that cheap foreign metal imports posed a threat to national security. As Chinese company Jingye Group acquired the UK’s second-largest steelmaker, British Steel, in 2019 and the Biden administration has previously accused China of dumping steel produced by its state-subsidised industry into global markets, the deal states that any UK steel company owned by a Chinese entity must undertake an audit of its financial records. This information is then to be shared with the US. Similar deals were previously made with the European Union and Japan, however, talks with the UK on lifting the tariffs only began in January due to their exit from the bloc.

In exchange for the suspension, the UK has agreed to lift its retaliatory tariffs on several US goods including bourbon and Levi’s jeans. With the deal set to take effect on 1st June 2022, business groups have welcomed the decision as more than US$500m worth of US exports will once again be traded, particularly advantaging American distillers whose bourbon whiskeys will be cheaper and therefore more attractive for UK shoppers. International Trade Secretary Anne-Marie Trevelyan has also said that the deal is great news for the UK’s steel and aluminium manufacturers who will be able to enjoy a high level of tariff-free access to the US market while also supporting the employment of more than 80,000 people across the country. That said, there is still a long way to go before the creation of free trade. While the US accounts for nearly one fifth of total UK trade, the UK market represents just 5% of US exports, meaning the deal is unlikely to have any significant impact on prices of British steel. The suspension of tariffs is an important first step toward wider free trade talks for which there is a long journey ahead.

UK inflation surpassed economists’ predictions of 5.9% in February as the Office for National Statistics announced that the consumer price index (CPI) rose at an annual rate of 6.2%, up from 5.5% in January. The figure is now at a 30-year high which increased the pressure on Chancellor Rishi Sunak to announce greater support for households in his Spring Budget statement. The rise is attributable to the surging global prices for energy, petrol, food, and durable goods with household energy bills being up almost 25% on a year ago. In normal times, it is typical for the prices of some foods to increase and others to fall in consequence yet, in the current economic environment, food prices are rising across the board dealing a further blow to poorer households.

The United Kingdom now has the second-highest annual inflation rate among the G7 countries with the US taking poll position. To tackle this, Sunak has put in place provisions that will help Britons through the worst cost-of-living squeeze in decades, including a fuel duty cut and a £3,000 rise in the National Insurance threshold. Chief Economist at KPMG UK, Yael Selfin, has a slightly more optimistic outlook on the effects of high inflation figures, suggesting that it will put more pressure on the Bank of England (BoE) to continue raising interest rates meaning price growth will soon subdue. She says that if inflation expectations are managed and global commodity prices stabilise by next year, it is more than likely that inflation will return to its 2% target by mid-2024. With the BoE raising its forecast inflation to peak above 8% during the April-June period and with regulated household energy bills due to jump by more than half next month, it is not yet clear how viable Selfin’s predictions are.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
Market Round-Up
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