After a torrid April, UK equity markets rose during May as investor sentiment improved, boosted by hopes of a continued moderation in global trade tensions. The UK and US reached a one-year tariff agreement that will include a baseline 10% tariff on UK imports to the US and cuts to vehicle import tariffs. The UK and EU also agreed a partial “reset” on their trading relationship.
- Consumer price inflation rose sharply in April
- The Bank of England cut the base rate by 25 basis points
- The IMF upgraded its 2025 growth forecast for the UK economy
Sentiment picks up: after a torrid April, UK equity markets rose during May as investor sentiment improved, boosted by hopes of a continued moderation in global trade tensions. The UK and US reached a one-year tariff agreement that will include a baseline 10% tariff on UK imports to the US and cuts to vehicle import tariffs. The UK and EU also agreed a partial “reset” on their trading relationship. Over May, the FTSE 100 Index rose by 3.3%, while the more domestically focused FTSE 250 Index climbed by 5.8%.
“The BoE warned that US trade policy had created ‘a new source of risk for the global economy’”
UK rates fall: policymakers at the Bank of England (BoE) voted by five to four in favour of cutting the key base rate2 from 4.5% to 4.25% in May, taking UK rates to their lowest level4 for two years. However, BoE chief economist Huw Pill also cautioned against policymakers cutting too quickly, observing: “The MPC started cutting … slightly too early in 2024.”
Risks to growth: the BoE9 warned that US trade policy had created “a new source of risk for the global economy” although the impact on the UK’s growth outlook is expected to be relatively small. Elsewhere, the International Monetary Fund (IMF) warned that “persistent uncertainty” caused by global trade tensions willl reduce UK economic growth by 0.3% by 2026. Nevertheless, having cut its forecast for UK economic growth for this year from 1.6% to 1.1% in April, the IMF upgraded its 2025 prediction to 1.2% and maintained its 2026 forecast at 1.4%, urging the UK government to “stay the course” on its fiscal plans.
Inflationary pressures intensify: the annualised rate of consumer price inflation rose sharply in April from 2.6% in March to 3.5%, stoked by in part by an increase in domestic energy prices; meanwhile, service price inflation rose from 4.7% to 5.4% year on year. The UK economy expanded by a better-than-expected 0.7% during the first quarter of 2025, boosted by activity in the services sector.
Backing Britain: seventeen of the UK’s biggest workplace pension providers intend to allocate at least 10% of their defined contribution default funds into private markets by 2030, with at least 5% of the total to be invested in the UK. The pledge forms part of the new Mansion House Accord and is designed to secure better financial outcomes for DC savers through the higher potential net returns available in private markets.
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