Q1 25 UK GDP: The Best It'll Get For A While

Economic

Summary:

In the first three months of the year, the economy grew by 0.7% QoQ, the fastest such rate since the first quarter of last year...

In the first three months of the year, the economy grew by 0.7% QoQ, the fastest such rate since the first quarter of last year, which in turn took the annual pace of GDP growth to a better-than-expected 1.3% YoY.

It must be said, however, that the above figures flatter the actual state of the economy, given the huge positive skew in the data from a significant amount of front-running. This takes the form of both a rush of exports ahead of the US' tariff imposition at the beginning of last month, as well as activity having been pulled forward ahead of the impacts of the National Insurance hike, and minimum wage increase, from the start of the new tax year.

Consequently, there is little point in placing much weight on the Q1 GDP data, particularly with economic momentum having waned considerably over the last six weeks or so, and with risks to the outlook continuing to tilt firmly to the downside. April's PMI surveys help to prove this point, with the composite output metric having slumped to a 29-month low, well into contractionary territory.

It seems likely that growth will remain anaemic for the remainder of the year, with the first quarter likely being as good as it gets for the UK economy for some time to come. This reflects not only the aforementioned tax changes, but also an increasingly uncertain domestic and global backdrop, which will likely continue having a detrimental impact on both business investment and consumer spending.

That, though, will also act as a further disinflationary impulse within the UK economy, further contributing to the idea that this summer's inevitable 'hump' in CPI will indeed prove temporary.

Today's growth data, though, will likely have little-to-no impact on the BoE policy outlook. A June cut remains a long shot, given the reiteration of the 'gradual and careful' guidance and hawkish vote split seen at the MPC meeting last week. Consequently, my base case remains that it will be August before the 'Old Lady' delivers another 25bp reduction in Bank Rate, though waning economic momentum, an increasingly slack labour market, and greater confidence in price pressures proving transitory will likely combine to force a faster pace of easing, perhaps in larger clips too, once the summer is out.

Source: Pepperstone

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Economic

Forex

Dollar Weakens as Trade and Currency Policy Uncertainty Grows

The U.S. dollar continued its drift lower in a week dominated by global trade policy developments and speculation over Washington’s stance on exchange rates. While easing trade tensions between the U.S. and China briefly buoyed investor sentiment, attention has shifted to the possibility that a weaker dollar could now be a deliberate component of U.S. trade strategy—particularly in discussions with Asian economies.

Reports of a closed-door meeting between U.S. and South Korean officials last week to discuss the dollar/won exchange rate sparked notable currency market movements. The South Korean won surged 0.8% on Thursday to 1,396.22 per dollar, adding to a 0.6% gain from the previous session. This rebound marks a reversal for the won, which lost 14% in 2024, making it the region’s worst-performing currency last year. However, it has since recovered nearly 6% in 2025, aided by shifting policy dynamics and improved capital inflows.

Currency Diplomacy: Subtle Signaling or Strategic Shift?

While Bloomberg downplayed the suggestion that the U.S. is explicitly targeting a weaker dollar, the won’s reaction, combined with similar movements in the Taiwan dollar earlier this month, reveals growing market sensitivity to perceived policy shifts. The two-day rally in the Taiwan dollar had coincided with the conclusion of U.S.-Taiwan trade talks, reinforcing speculation that exchange rate flexibility is being woven into broader economic diplomacy.

Kieran Williams of InTouch Capital Markets noted that the dual influence of U.S. trade discussions and tolerance for a softer dollar has become a tailwind for the won. However, he cautioned that upside may be limited by broader uncertainties, including domestic economic conditions and residual trade frictions.

Dollar’s Divergence Across Global Currency Markets

Although the dollar has managed to recover modest ground against major currencies such as the euro, British pound, and Japanese yen—gaining on the back of higher Treasury yields and expectations for a resilient U.S. economy—it has been less dominant against emerging market peers. The Mexican peso remains near a seven-month high at 19.38 per dollar, and the Japanese yen, despite recent weakness, rose 0.3% to 146.32 per dollar on Thursday.

The U.S. dollar index fell slightly by 0.11% to 100.89 but remains poised for its fourth consecutive weekly gain. Still, movements have been fragmented, with stronger gains against developed currencies offset by softness against Asia-Pacific and Latin American units.

Trade Outlook and Treasury Yields Shape Market Expectations

Investors are now focused on April’s U.S. retail sales data and the next steps in trade negotiations following the 90-day tariff pause agreed by Washington and Beijing on Monday. Commonwealth Bank of Australia’s Kristina Clifton said that despite the near-term weakness, she expects the dollar index to rise another 2% to 3% in the coming weeks, arguing that major currencies like the euro, pound, and yen will continue to absorb the brunt of dollar strength amid a shifting global growth narrative.

Meanwhile, U.S. Treasury yields have climbed higher, with the 10-year yield hitting a one-month peak. Market concerns about the fiscal trajectory under Trump’s latest budget proposal—expected to add trillions in new debt—are contributing to upward pressure on yields, which in turn supports selective dollar strength.

Resilient Aussie and Kiwi Defy Broader Dollar Gains

The Australian dollar posted modest gains, up 0.22% to $0.64425, following strong domestic employment figures that complicate the case for aggressive monetary easing by the Reserve Bank of Australia. Although a rate cut is still widely anticipated next week, the strength in job creation adds nuance to expectations. The New Zealand dollar also rose 0.17% to $0.5908, reflecting similar regional sentiment.

The dollar’s modest pullback underscores a complex landscape in which geopolitical strategy, fiscal risks, and domestic economic indicators are all in play. While the greenback remains underpinned by solid U.S. fundamentals, its path forward is being reshaped by evolving trade negotiations and emerging currency diplomacy. As talks with Asia continue, any signals that the U.S. is softening its commitment to a strong dollar could realign capital flows and further bolster emerging market currencies—especially in Asia.

Source: Reuters

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Economic

Employment Growth Defies Expectations But Policy Shift Still Likely

Australia’s labour market delivered an unexpected surge in April, with employment climbing by 89,000 jobs—more than four times the expected increase of 20,000. The majority of gains were in full-time positions, particularly among women, pushing the participation rate back to 67.1%, near historical highs. The jobless rate remained steady at 4.1%, suggesting that growing labour supply was met by strong demand.

However, this strength in hiring has not deterred market expectations for a 25-basis-point rate cut by the RBA at its upcoming May policy meeting. Despite the robust jobs data, inflation has slowed, and the broader economic context has shifted towards caution amid international uncertainty, especially surrounding global trade policies.

Inflation Trends and Global Headwinds Support a Measured Easing Cycle

While employment figures were notably strong, hours worked remained flat for the month—an indicator that may suggest limits to productivity gains despite job growth. More importantly for the RBA, consumer inflation has cooled. Headline CPI was steady at 2.4% in the first quarter, while the trimmed mean—a core measure closely watched by the RBA—slowed to 2.9%, re-entering the central bank’s target range of 2% to 3% for the first time since 2021.

This easing in inflation pressures has reinforced the case for monetary stimulus, particularly as the global economy navigates elevated uncertainty, including the effects of recent U.S.-China tariff fluctuations. Markets are no longer pricing in aggressive easing; expectations for rate cuts by year-end have been trimmed from over 100 basis points to about 75 basis points, as the urgency has moderated in light of a trade truce.

Rate Cuts Expected, But Momentum to Remain Gradual

Economists broadly anticipate a cautious pace in the RBA’s monetary policy adjustments. AMP economist My Bui noted that while the strength of the labour market would not prevent cuts, the cycle would likely remain shallow. TD Securities analysts projected two rate reductions—one in May and another in August—emphasizing that cuts are more likely to coincide with the release of the central bank’s quarterly Statement on Monetary Policy, allowing for data-informed decisions.

The RBA had already signaled in April that its May meeting would be a juncture to reevaluate monetary settings, especially given signs that wage growth has remained controlled and job advertisements are stable. The central bank currently forecasts unemployment to peak at 4.2%, indicating limited room for further loosening in the jobs market.

Monetary Policy Navigates a Balancing Act

While recent labour market data highlight the resilience of the Australian economy, the RBA remains wary of broader macroeconomic dynamics. Wage growth in the private sector has not shown signs of overheating, but weak productivity trends continue to pose a risk to the inflation outlook. The RBA is cautious that cost pressures—if not balanced by efficiency gains—could undermine the progress achieved in bringing inflation under control.

The latest employment report may delay any aggressive rate cut speculation, but it does not fundamentally alter the central bank’s current trajectory. Instead, the RBA is likely to use this strong labour data as a cushion to proceed with policy easing in a measured, controlled manner while retaining flexibility to pause if inflationary pressures unexpectedly reemerge.

April’s job surge reinforces Australia’s post-pandemic economic strength, but it does not conflict with a modest monetary easing cycle. As inflation stabilizes and global risks persist, the RBA is poised to lower the cash rate, albeit cautiously. The central bank’s challenge will be to navigate between supporting domestic resilience and guarding against renewed inflationary risks in an unpredictable international environment.

Source: Reuters

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Economic

Market Momentum Stalls Amid Lingering Uncertainty

After a brief wave of optimism powered by policy truce hopes and earnings resilience, global markets are entering a holding pattern. Asian equities drifted, and European futures signaled a mixed open as traders turned cautious, awaiting new macroeconomic triggers. Investor attention has now pivoted to a trio of market-moving events due later in the day: Walmart’s quarterly results, U.S. retail sales for April, and a speech from Federal Reserve Chair Jerome Powell.

The shift in tone reflects persistent concerns over the direction of the global economy. While trade tensions between the U.S. and China have recently de-escalated, the broader impact of President Trump’s tariff policies—and the market’s difficulty in pricing their long-term effects—continues to weigh on sentiment.

Walmart Earnings as a Litmus Test for Consumer Health

As one of the few major retailers to reaffirm its full-year guidance amid tariff-related disruptions, Walmart’s earnings are being watched closely. The company’s results will serve as a barometer for the resilience of the U.S. consumer in the face of inflation uncertainty and supply chain costs. A deterioration in its outlook would likely reverberate across equity markets, as Walmart is often viewed as a defensive benchmark for retail-sector health.

The timing of the release is crucial, coming alongside the U.S. April retail sales report, where consensus forecasts expect no growth on a monthly basis. Together, the two will offer insight into both corporate and household responses to inflationary pressures and shifting consumption patterns.

Fed Policy Outlook Hinges on Powell’s Clarity

In parallel, Federal Reserve Chair Jerome Powell is scheduled to speak later today, with markets watching for any signals about the trajectory of U.S. interest rates. Policymakers remain constrained by conflicting indicators: inflation has moderated, but the economic implications of the trade war and tariff shocks remain unclear. Given this ambiguity, Powell is expected to maintain a cautious tone, reaffirming the Fed’s patient stance on policy shifts.

The lack of definitive economic data has made it difficult for the Fed to assess the long-term impact of Trump's new tariffs, which complicate the central bank’s dual mandate of price stability and full employment. Any deviation from Powell’s prior messaging could introduce fresh volatility into rates and equity markets.

External Growth Data May Take a Backseat

While GDP figures from the UK and euro zone are also on Thursday’s agenda, their significance may be muted. The data reflects economic activity from the first quarter—prior to the imposition of Trump’s so-called “Liberation Day” tariffs—and thus may not reflect the current macroeconomic environment shaped by trade-related uncertainty. Nonetheless, any deviation from expectations could influence currency and bond markets, particularly in a context of diverging global monetary policies.

Currency Markets React to Trade Diplomacy Signals

The dollar continues to fluctuate against the Korean won, falling for the second consecutive day following reports of a recent foreign exchange discussion between South Korean and U.S. officials. These moves echo a recent rally in the Taiwan dollar, reinforcing speculation that the U.S. may be softening its stance on dollar strength as part of broader trade negotiations. If such a shift is confirmed, it could reshape capital flows and pressure Fed policy expectations.

Investors are entering Thursday in search of clarity. Whether it's Powell's tone, Walmart's earnings outlook, or the resilience of retail sales, each event carries the potential to sway market sentiment. However, the absence of cohesive forward guidance from economic data or policy direction suggests that markets may continue to experience stop-start momentum in the near term. The balance between slowing inflation, strong labor indicators, and persistent geopolitical friction will define whether today’s releases serve as a stabilizer or another source of volatility.

Source: Reuters

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China–U.S. Trade War

Economic

APEC Sounds Alarm Over Sluggish Export Outlook

As the 21-member Asia-Pacific Economic Cooperation (APEC) forum convened its annual meeting of trade ministers in Jeju, South Korea, the group released a sobering outlook for regional trade and growth. APEC’s latest regional trends analysis forecasts export growth will nearly stall in 2025, rising only 0.4% compared to 5.7% in the previous year. This dramatic slowdown underscores the widespread disruption caused by new rounds of U.S. tariffs, which have affected more than half of the forum’s economies.

Alongside the trade warning, APEC revised its regional economic growth forecast downward to 2.6%, from an earlier estimate of 3.3%. According to the report, weakening external demand, particularly for manufactured and consumer goods, combined with uncertainty surrounding trade policy, are the primary factors weighing on performance. The softening in services trade—historically more resilient—is also attributed to anxiety over goods-related restrictions and shifting policy landscapes.

Tariff Tensions Threaten Multilateral Progress

The new U.S. tariff actions, launched under the Trump administration, mark a significant shift in the region’s trade architecture. Historically, APEC has benefited from a sustained reduction in average tariffs—from 17% in 1989 to just 5.3% by 2021—which enabled a more than ninefold increase in merchandise trade over the past three decades. However, the reintroduction of high, targeted tariffs undermines this liberalization momentum, particularly as they have disproportionately affected key APEC economies like China, Vietnam, and South Korea.

The disruption comes at a time when the global rules-based trading system is under pressure. The U.S. has paused funding to the World Trade Organization (WTO), a move rooted in Washington’s belief that the WTO has facilitated unfair trade practices by China. As a result, APEC’s role as a platform for informal dialogue and economic integration has gained renewed urgency—albeit with diminished multilateral coherence.

Bilateral Talks Gain Traction as Multilateralism Falters

While multilateral trade cooperation appears strained, APEC member states are actively engaging Washington through bilateral channels. U.S. Trade Representative Jamieson Greer is holding a series of one-on-one meetings during the Jeju summit, including sessions with South Korea and New Zealand. These talks follow up on previous negotiations in Washington and complement broader U.S. efforts to reshape trade relationships across the Indo-Pacific region.

Greer emphasized the urgency of these dialogues, stating that his office is "moving as quickly as we possibly can with folks who want to be ambitious." Although the U.S. declined to release Greer’s full meeting schedule, it is clear that bilateralism has become a preferred vehicle for managing U.S. trade strategy in the region. Notably, China’s Vice Commerce Minister Li Chenggang is also present, though there has been no confirmation of follow-up meetings with Greer after their earlier tariff-suspension agreement in Geneva.

Structural Divergence and Trade Fragmentation Take Hold

The divergence between the U.S.'s protectionist trade posture and APEC's historic commitment to trade liberalization is now creating structural uncertainties. Although tariff truce efforts—such as those between the U.S. and China—have moderated immediate risks, they have not restored confidence in a predictable trading environment. Business investments and supply chain planning continue to be shaped by this fragmentation, pushing countries and firms to reassess long-term dependencies.

The shift from coordinated multilateral trade agreements toward bilateral arrangements also risks deepening the regional disparity in trade access and regulatory standards. Countries unable to secure bilateral deals with the U.S. may find themselves at a disadvantage, amplifying trade asymmetries within APEC.

As APEC grapples with slower trade growth and rising policy uncertainty, the forum faces a test of relevance. The regional bloc still accounts for half of global trade and 60% of global GDP, but its ability to shield members from external shocks has diminished. While member economies scramble to forge individual agreements with the U.S., the broader vision of inclusive and open regional trade is increasingly challenged. The upcoming APEC leaders’ summit in Gyeongju may be a crucial opportunity to reassert collective commitments—or to acknowledge the region’s shift toward fragmented, interest-driven negotiations.

Source: Reuters

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China–U.S. Trade War

Diplomatic Thaw and a Rare Joint Statement

After years of escalating trade tensions and tit-for-tat tariffs, the United States and China have entered a tentative period of dialogue. This shift was marked by a 90-day suspension of most new tariffs following a high-level meeting in Geneva on May 11, 2025. Notably, both sides issued a joint statement—an act unseen since the "Sunnylands" climate declaration in 2023—signaling a rare alignment in rhetoric. U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer emphasized that negotiations were now taking place under a “mutual respect” framework, a sharp contrast to the combative exchanges under the Biden administration.

Despite the rollback, the trade environment remains fundamentally altered. The brief imposition of what resembled a trade embargo revealed how tariffs have become not only punitive but also a flexible diplomatic tool. China’s swift retaliatory action—unlike the 179 other regions targeted—highlighted its growing confidence in economic countermeasures. Meanwhile, Washington is reportedly weighing the use of secondary sanctions, particularly against third-party buyers of Russian or Chinese commodities, reinforcing tariffs as part of a broader geopolitical toolkit.

Supply Chain Diversification Accelerates as Business Sentiment Cools

Companies have emerged from this episode more cautious. The abruptness of the tariff escalation triggered fresh momentum in supply chain diversification. Jianwei Xu of Natixis argues that the post-WWII era of trade predictability has ended, and even if tariffs are temporarily reduced, the erosion of confidence cannot be reversed quickly. While large corporations have the resources to mitigate risks through geographic diversification, small firms—especially those with single-country dependencies—face production disruptions and higher costs.

China’s response has been both tactical and ideological. Within minutes of publishing the joint statement in Chinese, the Ministry of Commerce convened stakeholders to bolster export controls on critical minerals, reinforcing Beijing’s leverage in high-tech supply chains. The release of a new whitepaper on national security underscored a self-reliance narrative rooted in historical grievances, warning of foreign coercion and emphasizing internal strength.

Trade flows also reflect this strategic shift. Although Chinese exports to the U.S. plunged over 20% in April, exports to Southeast Asia, Latin America, and the EU expanded. China’s $900 million agricultural deal with Argentina and resumed soybean imports from Brazil signal a growing intention to diversify sourcing away from U.S. suppliers. Nonetheless, analysts caution that seasonality, weather conditions, and shipping infrastructure will limit China’s ability to completely pivot in the short term.

Despite official rhetoric, many U.S. goods still enjoy practical exemptions when entering China. Jacob Cooke, CEO of WPIC Marketing + Technologies, noted that products composed largely of China-made components often receive tariff leniency. This practice, also observed during Trump’s first term, allows trade to continue under the surface even amid headline restrictions. Peking University economist Justin Yifu Lin adds that complete decoupling remains unlikely due to American dependence on Chinese intermediate goods, especially in electronics and consumer hardware.

Implications for U.S. Firms and Strategic Competition

The 90-day window has done little to ease long-term uncertainties for U.S. businesses. The U.S.-China Business Council warns that ongoing ambiguity in trade rules and market access continues to harm American firms' competitiveness. At the same time, China’s growing assertiveness in its foreign policy posture, illustrated by President Xi Jinping’s criticisms of "bullying and coercion" during a summit with Latin American leaders, signals a global realignment that seeks to reduce reliance on Western markets.

Meanwhile, investors have responded with cautious optimism. Hong Kong’s Hang Seng Index and the S&P 500 both recovered to pre-tariff escalation levels, suggesting markets are interpreting the truce as a temporary de-escalation rather than a structural resolution.

The recent diplomatic engagements between the U.S. and China mark a delicate and potentially fragile turning point. While the mutual decision to suspend new tariffs provides short-term breathing room, it does not undo years of strategic divergence and mutual distrust. The structural shift toward national security prioritization in Beijing, and tariff fluidity in Washington, suggests that trade will remain both a battleground and a bargaining chip. Businesses and policymakers must prepare for continued volatility as the two largest economies in the world continue navigating a path between cooperation and competition.

Source: CNBC

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Russia-Ukraine Conflict

Leaders Absent as Peace Talks Resume After Three-Year Hiatus

The latest attempt at direct negotiations between Russia and Ukraine is scheduled to take place in Istanbul, marking the first formal meeting between the two sides since March 2022. Despite the high stakes of ending Europe’s largest military conflict since World War II, both Russian President Vladimir Putin and former U.S. President Donald Trump—who had recently floated the possibility of attending—have confirmed their absence. Instead, Russia is sending a delegation of seasoned officials, including presidential adviser Vladimir Medinsky and Deputy Defence Minister Alexander Fomin.

Putin had proposed the talks on Sunday without any preconditions, a move that initially raised expectations for high-level participation. However, his decision not to attend in person, combined with Trump's withdrawal, has been interpreted as a sign that the meeting may serve more as a technical dialogue rather than a venue for landmark decisions. Ukrainian President Volodymyr Zelenskiy had previously conditioned his attendance on Putin’s presence, challenging the Russian leader to demonstrate a genuine commitment to peace. Nonetheless, Zelenskiy is en route to Turkey, indicating Ukraine's continued interest in dialogue despite diminished leadership presence.

Diverging Strategies on Ceasefire

The terms and structure of a potential ceasefire remain a key point of contention. Trump has advocated for an immediate 30-day truce, positioning himself as a neutral broker frustrated by both sides’ intransigence. Meanwhile, Ukraine has signaled support for this temporary pause, whereas Moscow has expressed interest in preliminary talks to explore the framework of such an agreement. A Russian lawmaker suggested the agenda might also include a large-scale prisoner exchange, signaling a potential humanitarian dimension to the discussions.

Diplomatic Alignments and Pressures

The U.S. has dispatched a delegation led by Secretary of State Marco Rubio, along with envoys Steve Witkoff and Keith Kellogg, to represent American interests. Ukrainian Foreign Minister Andrii Sybiha has already conferred with Rubio, aiming to align strategies in what he described as a "critical week" for diplomacy. The presence of the same Russian officials who participated in the March 2022 talks suggests a return to procedural negotiations rather than top-level breakthroughs.

In parallel with the diplomatic effort, Trump has hinted at escalating economic pressure if progress stalls. He reiterated the possibility of enforcing secondary sanctions on Russian oil buyers, alongside other financial penalties targeting Moscow. Such a move reflects continued use of economic statecraft to compel negotiation outcomes in a conflict that has deeply entangled global energy markets and geopolitical alliances.

Historical Context and Present Stakes

The backdrop of these talks is a war that began with Russia’s large-scale invasion in February 2022, described by Moscow as a "special military operation." However, Kyiv and its Western allies view the action as an unjustified act of aggression aimed at territorial conquest. The last face-to-face negotiations also occurred in Istanbul during the early weeks of the conflict but failed to yield lasting outcomes. The resumption of dialogue—regardless of top-level absence—still holds symbolic and strategic value as the international community pushes for de-escalation.

While the absence of Putin and Trump diminishes the potential for a decisive resolution in Istanbul, the meeting may still lay groundwork for future negotiations. The competing diplomatic and strategic signals underscore a fragile but persistent desire to halt the conflict, even as battlefield dynamics and political ambitions continue to shape the trajectory of peace.