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Daily Economic Update
11.05.2025US/UK: A trade framework agreed with the 10% baseline duties, unsurprisingly, remaining. The US and the UK authorities agreed on a bilateral trade framework on Thursday, with talks continuing over the coming weeks to finalize details. The agreement provides better access for agriculture and other products and trims US auto levies to 10% under a quota system (up to 100K vehicles) from the 25% imposed universally. The UK government mentioned that US tariffs on the country’s steel and aluminum exports will drop to zero but that wasn’t explicitly confirmed by the US authorities. In addition, the UK government said that the agreement will not weaken its food standards to accommodate imports from the US. As per US trade data, the UK was the US’s ninth-largest goods trade partner, with $148bn of bilateral merchandise trade and a $12bn surplus for the US in 2024. The trade framework is a welcome de-escalatory move; still, a continuation of the baseline 10% tariff (even for a country that with which the US has a merchandise trade surplus) is disappointing, but not surprising to us. This most likely means that this 10% baseline tariff will remain in place for other countries, which would pose a challenge for the negotiations, especially for the countries that have large trade surpluses with the US. Meanwhile, US trade talks with China started yesterday in Switzerland, with Trump describing “great progress” in initial discussions. However, before the talks, he sent conflicting signals about his de-escalatory stance, initially ruling out lowering duties on China preemptively but later suggesting reducing them to 80% from the current 145%.
UK: BoE cuts rates by 25 bps, looks to move carefully amid the uncertain environment. The Bank of England (BoE) reduced the bank rate by 25 bps to 4.25%, with five out of nine MPC members opting for a 25 bps cut, two for a larger 50 bps cut, but the remaining two voting for no change. Amid weakening growth and an uncertain global trade environment, the bank guided that they will follow “a careful and gradual approach” in the future, seeing substantial progress on disinflation despite anticipating “temporary” higher price rises over the coming months. The MPC statement also emphasized that “prior to the latest global developments, most members in this group had judged that this policy decision would be finely balanced between no change in Bank Rate and a further reduction,” indicating caution among policymakers before the recent turmoil. The bank upgraded its growth forecast to 1% from 0.7% for 2025 but cut to 1.25% from 1.5% for 2026. It continues to see annual headline inflation steadily rising to 3.7% by September from 2.6% in March due to increases in energy and utility prices but the path broadly remains one of disinflation, expecting a return to the 2% goal by early 2027. Following the somewhat ‘hawkish’ rate cut, UK gilt yields increased slightly, with the pound rising against the USD. However, markets continue to see two more interest rate cuts by the end of 2025, with the next move in August.
China: Exports rise strongly despite a plunge in exports to the US. China’s April exports increased by 8.1% y/y, far exceeding market expectations of a 1.9% rise but less than March’s 12.4% figure. The increase was mainly spurred by China’s growing trade with ASEAN countries, with exports to those countries rising 21% in April while exports to the US declined by 21% (versus a 9.1% increase in March). Meanwhile, CPI inflation remained in negative territory for the third consecutive month, standing at an unchanged -0.1% y/y as the economy continues to grapple with weak domestic demand. Similarly, the PPI dropped for the 31st straight month at -2.7% y/y in April (-2.5% in March).
Egypt: Inflation ticks up to 13.9% in April on fuel subsidy cuts, but remains on an easing path. Consumer price inflation accelerated slightly in April, reaching 13.9% y/y (1.3% m/m) from 13.6% in March. This was the second consecutive monthly increase in the inflation rate but was largely in line with expectations and mainly stoked by price rises in the housing and utilities sub-component (13.9% vs 13.0% in March) after the authorities cut fuel subsidies (hiking prices by an average of 13.6% on 11 April as part of the IMF program). Inflation in the transportation and recreation & culture categories also rose in April. Food price inflation, meanwhile, moderated to 6.0% from 6.6% in March. The increase in inflation in April is unlikely to alter the trajectory of monetary policy after the Central Bank of Egypt lowered benchmark interest rates to 25% in April – the first rate cut since the Covid-19 pandemic. Inflation has been on a downward path since February 2024, having peaked at 38% in late 2023, and the central bank expects the rate to continue easing through the year with a target of 7% (+/-2% pts) by end-2026. Figures for core inflation – published separately – are expected today.