UK Economic Developments:

• Labour Market Weakness: In March, the UK experienced a significant employment decline of 78,000, marking the largest drop since the early pandemic period. This was accompanied by a decrease in job vacancies falling below pre-pandemic levels for the first time in nearly four years. Despite these challenges, wage growth remained robust, with average weekly earnings (excluding bonuses) rising by 5.9% annually. These mixed signals presented a complex scenario for the Bank of England (BoE) in its monetary policy decisions .

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• Retail Sales Slowdown: The British Retail Consortium reported a deceleration in retail sales growth, with the value of same-store sales at BRC-member retail stores declining by 0.9% year-over-year in February. This slowdown indicated weakening demand for consumer goods, which could be bearish for the British pound .

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• Industrial Order Expectations: The Confederation of British Industry noted a decline in industrial order expectations for March. The CBI Industrial Order Expectations Index ticked down to -29 from -28 in February, suggesting expectations for lower order volumes in the manufacturing sector .​

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• Spring Statement and Fiscal Policy: Chancellor Rachel Reeves presented the March 2025 Spring Statement, emphasizing increased defense spending and implementing welfare reforms, including restrictions on universal credit and personal independence payments. Additionally, 10,000 civil service jobs were set to be cut. These fiscal measures aimed to reduce the welfare bill and were viewed as politically challenging.

US Economic Developments:

• Federal Reserve's Monetary Policy: At its March 2025 meeting, the Federal Reserve decided to maintain its interest rates between 4.25% and 4.5%. While inflation had decreased over the past two years, concerns persisted about inflation remaining above the 2% target. The decision to hold rates steady was influenced by increased uncertainty surrounding global economic growth, higher tariffs, and potential fiscal policy shifts. The Fed's cautious stance reflected a complex economic environment influenced by domestic and international policy developments.

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• Financial Market Volatility: In response to recent financial market volatility and the implementation of historically high U.S. tariffs, the Federal Reserve considered potential interventions. These included emergency interest rate cuts, temporarily excluding Treasurys from certain bank capital requirements, and targeted lending tools to address tightening liquidity in overnight lending markets.

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Geopolitical and Trade Factors:

• US Trade Policies: Former President Donald Trump's proposed tariffs, including a 25% levy on Canadian and Mexican imports and a 10% tariff on Chinese goods, raised concerns about increased costs for consumers. These policies could weaken household purchasing power and slow economic growth, impacting the US dollar's strength.

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• Global Trade Uncertainty: The Bank of England's March 2025 Monetary Policy Committee minutes highlighted increased geopolitical and global trade policy uncertainty. The US administration's imposition of tariffs on various goods imports and the responses from other governments contributed to elevated risks around the near-term outlook for activity in advanced economies, including the UK .​

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