EU Targets Trump's 'Big Beautiful Bill' Over Tax Provision in Tariff Talks

British goods exports to the United States suffered a record fall in April after U.S. President Donald Trump imposed new tariffs, official figures showed on Thursday, pushing Britain's goods trade deficit to its widest in more than three years.

Britain exported 4.1 billion pounds ($5.6 billion) of goods to the United States in April, down from 6.1 billion pounds in March, Britain's Office for National Statistics said, the lowest amount since February 2022 and the sharpest decline since monthly records began in 1997.

The 2 billion pound fall - a 33% drop in percentage terms - contributed to a bigger-than-expected drop in British gross domestic product in April.

Last week Germany said its exports to the United States fell by 10.5% in April although that figure, unlike Britain's, is seasonally adjusted.

The British Chambers of Commerce said the scale of the fall partly reflected manufacturers shipping extra goods in March to avoid an expected increase in tariffs. Even so, April's goods exports were 15% lower than a year earlier.

"The economic effects of the U.S. tariffs are now a reality. Thousands of UK exporters are dealing with lower orders and higher supply chain and customer costs," the BCC's head of trade policy, William Bain, said.

The United States is Britain's largest single goods export destination and is especially important for car makers, although total British exports to countries in the European Union are higher.

Britain exported 59.3 billion pounds of goods to the United States last year and imported 57.1 billion pounds.

The United States imposed 25% tariffs on British steel and aluminium on March 12 and in early April increased tariffs on imports of cars to 27.5% as well as a blanket tariff of 10% on other goods.

Last month Britain agreed the outline of a deal to remove the extra tariffs on steel, aluminium and cars - the only country to do so - but it has yet to be implemented and the 10% tariff remains in place for other goods.

Before the deal, the Bank of England estimated the impact of the tariffs on Britain would be relatively modest, reducing economic output by 0.3% in three years' time.

BIGGER TRADE DEFICIT

Thursday's data also showed that the fall in exports to the United States pushed Britain's global goods trade deficit to 23.2 billion pounds in April from 19.9 billion pounds in March, its widest since January 2022 and nearly 3 billion pounds more than had been expected by economists polled by Reuters.

Excluding trade in precious metals, which the ONS says adds volatility to the data, the goods trade deficit was the widest since May 2023 at 21.6 billion pounds.

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The Bank of England (BoE) is expected to maintain its Bank Rate at 4.25% during its June meeting, according to a forecast from Bank of America (BofA). The financial institution predicts a 7-2 vote split among Monetary Policy Committee members, with two members voting for a 25 basis point cut.

BofA notes that recent British pound (GBP) weakness stems from seasonal underperformance and softening macroeconomic data. Despite the currency’s recent price movements, BofA’s GBP dashboard does not indicate that markets are adopting an increasingly bearish stance toward the pound.

Market positioning remains a concern for the currency, along with the broader risk environment ahead of the July 9th tariff deadline. BofA analysts point out that the recalibration in BoE market pricing is now more aligned with their base case scenario.

The financial institution emphasizes that interest rates and carry have not been reliable indicators for GBP price movements. Instead, global risk dynamics will likely play a more dominant role in determining the currency’s performance.

BofA suggests that a dovish Monetary Policy Committee stance is perhaps the base case scenario, which creates some asymmetry for the pound. This outlook comes as markets continue to assess the central bank’s policy trajectory amid evolving economic conditions.

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The Producer Price Index (PPI), a critical measure of the change in the price of goods sold by manufacturers, reported a slight uptick in the latest economic data. The PPI is considered a leading indicator of consumer price inflation, which accounts for the majority of overall inflation.

The actual figure came in at 0.1%, marking a modest increase from the previous figure. This shift towards positive territory indicates a rise in the prices of goods sold by manufacturers, signaling the potential for increased inflation down the line.

However, the actual figure of 0.1% fell short of the forecasted 0.2%. Economists had anticipated a slightly higher increase, suggesting a more robust inflationary trend. The lower-than-expected PPI reading could be interpreted as a bearish signal for the USD, as it indicates slower-than-anticipated inflation.

Comparatively, the previous reading for the PPI was at -0.2%. The move from negative to positive is a significant shift, as it indicates a reversal of the previous deflationary trend. This change could signal a potential shift in the broader economic landscape, with manufacturers increasing prices in response to various market pressures.

The PPI’s importance as a leading indicator of inflation cannot be overstated, as it provides a snapshot of manufacturers’ pricing power and potential inflationary pressures. An increase in the PPI often precedes higher consumer prices, affecting the purchasing power of consumers and potentially influencing the Federal Reserve’s decisions on interest rates.

In conclusion, while the PPI’s modest increase indicates a move away from deflation, its failure to meet forecasts may raise some concerns about the pace of inflation. This could potentially influence decisions on monetary policy and affect the value of the USD in the currency markets. As always, market participants will be keeping a close eye on these indicators to inform their decisions.

Source: Investing