A week can be a long time. Long enough to turn a gloomy financial outlook into something much brighter.
The second week in May looks to have been such a week – with three pieces of very good news.
Good news from India
The first piece of good news was a trade deal with India.
India is on the way to becoming one of the biggest economies. And with a population of 1.45 billion, it is a huge market to tap into.
Under the deal, India will lower tariffs on UK products, including whisky (from 150% to 40% over 10 years), cars (from over 100% to 10%), medical devices, aerospace parts, machinery, lamb, salmon, chocolate, soft drinks, cosmetics and even biscuits.
In exchange, the UK will remove or lower tariffs on 99% of Indian exports, including jewellery, footwear, gems, leather, toys, engineering goods and car parts. Expect to see some unfamiliar names on the shelves, hangers and roads in the next few months.
The deal also includes easier customs processes easier and is expected to boost trade by an extra £25.5bn a year by 2040.
But good news on trade didn’t stop there.
Good news from Washington
Britain has become the first country to reach a trade agreement with the US since Mr Trump’s punitive ‘Liberation Day’ tariffs threw the global economy into crisis last month.
Sir Kier Starmer and Donald Trump announced an agreement – not technically a trade deal - to slash tariffs on British goods, including steel and cars, in what both hailed as an “exciting” day for the special relationship. It is certainly exciting for the carmakers, aircraft engine builders and others who had been watching tariffs price them out of one of their major markets.
The US has removed the 25% tariff on UK steel and aluminium exports meaning a reprieve for Britain’s steel industry, which only weeks ago was on the verge of collapse. Meanwhile, American tariffs on British cars fall from 27.5%. to 10% for the first 100,000 vehicles exported to the US.
A 10% baseline tariff on most goods remains in place, but Sir Keir said the US and UK were hammering out further details.
Both the US and UK’s agriculture sectors will gain new access to each other’s markets but Sir Keir insisted the Government has stuck to its “red lines” on farming standards.
In one week, the UK agreed new trade arrangements with the largest economy in the world, and what is fast becoming the third largest, meaning a real shot in the arm for the UK economy.
Good news from Threadneedle street
But important as these trade announcements may be, the best piece of news for many people was that the Bank of England has cut interest rates for the second time this year to 4.25% from 4.5%.
Inflation has not gone away, but it is less than expected, and despite the deal with the US, the bank remains concerned about the effect of the Trump trade war on the global economy which directly affects the UK as a major trading nation. The Bank cut its forecasts for UK growth next year to 1.25% from 1.5%, warning that tariffs and uncertainty about global trade would knock 0.3% off UK GDP over the next three years.
The Bank’s monetary committee believed that reducing borrowing costs to boost the economy would be essential.
Governor Andrew Bailey stressed the Bank will continue to take a “gradual and careful” approach to future rate cuts.
Inflationary pressures have continued to ease so we’ve been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be. That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”
Andrew Baily, Governor of the Bank of England
Good news for you?
A brighter outlook for trade is good news for UK businesses and the UK in general. Worries about recession and about job security have taken a step back.
But what will the impact be on you and your finances?
Mortgages. Any cut will be welcome news for mortgage borrowers. Lenders can be expected to adjust their pricing in response to base rate forecasts, and borrowers with tracker mortgages will see an almost immediate cut in their monthly payments. A typical tracker mortgage-holder is likely to see about £29 knocked off their monthly repayments following the latest cut, said the banking trade body UK Finance.
Many other borrowers and would-be borrowers could be seeing reductions in the next few months – mortgage costs have already fallen in the wake of the previous cut in bank rate and could do so again.
Before the announcement, the average two-year fixed mortgage rate was 5.14%, while a five-year deal was 5.08%, according to financial information service Moneyfacts.
If you are shopping around for a new mortgage, or have one of the approximately 1.8 million fixed mortgage deals set to expire in 2025? The mortgage market is volatile. Call us at Continuum for some expert help in finding the most appropriate deal for you.
Savings. Savers have been hit by a similar base rate reduction in February, and this latest cut is sure to lead to savings account providers easing back the returns they offer.
Previous cuts to the bank interest rate over the past year, for instance, saw the average rate paid by an easy access savings account tumble from 3.11% in May 2024 to 2.79% by the start of this month.
Many high street banks are already paying less than 2% on easy access accounts. Challenger banks may offer better returns, but as with mortgages, shopping around may be essential.
Are you seeking a suitable saving option with a competitive rate of return? Call us at Continuum for help with finding the account that offers you the most suitable combination of interest rate and the access you need.
Investments. Investors may breathe a sigh of relief with potentially more scope for international trade, translating into increased profits for exporting businesses and hence the potential for higher dividends as well as the possibility of a boost in share prices.
The business outlook has changed. It might be that your investment portfolio needs to change with it. If you need expert advice, call us at Continuum.
Pensions. The likely effect on pensions is less clear. If you are building your pension pot, or using drawdown to provide an income, a boost to trade could mean more scope for capital growth. If you are thinking about an annuity, the bond market – which tends to lead annuity rates – has if anything benefited from international upheavals. What the effect of a falling interest rate, and the potential for positive trade figures will be remains to be seen.
If you need to understand the effects on your pension, and whether you need to rethink your plans, call us at Continuum without delay.
Thinking about the future
The good news about trade deals can give you greater confidence about the future, while a cut in interest rate is positive for borrowers, even if savers will be less happy about it.
Whether you are a borrower or a saver, they will certainly affect both your short-term financial tactics and your long-term planning. The calculations that drive your decisions about saving, investing, your pension and providing for your family may all need to be reviewed.
At Continuum we can help you make those calculations, look at new ways to help reach your financial targets and help you find the financial products you need.
Start making the most of the good news. Call us at Continuum today.
What Is The New UK-India Trade Deal? - TechRound
Trump’s UK-US trade deal: what is Britain getting and what is it giving away?
Bank of England cuts interest rates to 4.25%, as governor welcomes US tariff deal news - BBC News
Bank of England Base Rate Cut To 4.25% Following Global Tariff Turmoil
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