How Trump’s tariffs bombshell could hit personal wealth in the UK

After weeks of mixed messages about the nature of the tariff package President Trump would announce on so-called ‘Liberation Day’, what emerged last night was towards the more aggressive end of expectations and certainly not ‘kind’ or ‘lenient’ as he had teased it. 

This unpleasant shock, which could potentially send the global economy into spasm, can be seen in the negative initial reaction from global equity markets. Likewise, the fact the UK got off relatively leniently with ‘only’ a 10% hit can be seen in the FTSE 100 index falling less than the stock market indices on the Continent, where the EU was hit with 20% tariffs.  

Here, Jason Hollands, managing director at wealth management firm Evelyn Partners, looks at the possible impacts on personal wealth in the UK: 
 
'Markets hate uncertainty and while yesterday’s big reveal gave us some degree of clarity, the impact of all this will only be more fully understood once we see how various trade partners choose to respond.  

‘Some will do so in kind with tariff packages of their own, as seems likely with the EU and China, dialling up the stakes - but that can be a destructive move that might backfire adding costs to their own consumers. Calmer heads could resist the urge to raise tariffs and choose to respond in a more economically positive way, for example by introducing corporate tax cuts and incentives to shore up business sentiment at home.  
 
'Higher friction costs on trade are ultimately bad for everyone, even countries like the UK that got off relatively lightly, as this upending of the global trade system will slow growth, possibly trigger recessions and ultimately raise costs for consumers, not least in the US itself. President Trump may have some legitimate grievances about the global economic order that has existed for nearly half a century and resulted in unbalanced trade for the US, but at least in the near term this will prove an act of self-harm as the costs of imports rise both directly and for US firms that use imported components.

'Let’s not forget that major firms like Apple and Tesla part manufacture in China, Nike sources from Vietnam (which has been whacked with an eyewatering 46% tariff) and tech giants like NVIDIA produce a significant amount of chips in Taiwan, which the US has just walloped with a 32% ‘discounted’ tariff rate. The agenda here is to pile the pain on businesses, whether foreign or American, to move manufacturing to the US. That won’t happen overnight. 

'But it’s not only stock markets that will be affected by this economic shock: the potential impacts on personal wealth and UK households could range far and wide. Although again we would counsel sitting tight and not making any rash decisions – not least because it’s not clear how this will play out, certainly in terms of the impact on interest rate movements.' 

Prices and inflation 

'It seems certain that the US will see marked price rises, but how far these tariffs will raise prices in the UK and Europe depends in part on whether there is any retaliation. PM Starmer is currently giving out a very calm message but if his government feels forced by US intransigence into eventually retaliating then UK consumers would certainly see prices rise in some areas.  

‘For instance, Trump sees VAT – a domestic tax which is imposed on all qualifying goods and services in the UK regardless of where they come from – as a tariff, which could continue to cause friction. 

‘However, even without direct retaliation it seems very probable that all nations will see prices rise as generalised tariffs such as these will restrict global free trade, distort supply lines, and raise the prices of parts and components that cross several borders. In a similar but less significant way to what occurred during the pandemic, it is likely that UK firms will see less choice and higher prices in goods that that they source from overseas.’ 

The economy and interest rates 

‘It would be easy to assume that the possible inflationary impact of the tariffs means that interest rates will stay higher for longer. But that might not be the case. 

‘We can be very sure that this will be bad for the stumbling UK economy at a time when households are struggling with higher taxes and increased bills, but what we don’t know yet is how either the Government or Bank of England will choose to respond.  

‘The Bank of England will face a dilemma. On the one hand, tariffs are going to lift the prices of some goods and its core remit is to keep a lid on inflation, as close to 2% as possible, which would point to rates staying higher for longer than previously expected.  

‘On then other, the Bank has taken a wider view of the economy in the last decade or so, taking growth and jobs into account in its monetary policy, particularly when dangerous shocks emerge.  As during the pandemic, it will want to support the economy from sinking into recession. It is quite possible that they will regard price spikes related to the implementation of tariffs as a one-off shock and focus more on the risk of economic stagnation.  

‘It’s not unthinkable that we will actually see interest rates come down more rapidly than expected. Of course any serious hit to UK economic growth could be felt in the jobs market, not just in terms of job insecurity but also in that firms suffering uncertainty – as well as the tax rises already in effect - could restrict wage and salary growth.’

Tax receipts and tax policy 

'The hit to the economy from a global trade war could leave the Office for Budget Responsibility’s forecasts and Rachel Reeves’ plans in tatters. It’s difficult to imagine a scenario where the Chancellor can approach the Autumn Budget with the same set of growth and fiscal assumptions that she held when she set out her Spring Statement last week. 

‘While the improved medium-term growth forecasts from the OBR gave the Chancellor some breathing space and opened up the possibility that with a fair wind the Autumn Budget could be a relatively uncontroversial affair, that now seems hopeful. 

‘Even if growth and tax receipts are not hit immediately, the medium and long-term outlook will probably be downgraded and that could force the Chancellor to come back for more tax rises or public spending cuts - if she continues to stand by her rules which last week she said were “non-negotiable”.  

‘If she ploughs ahead on that basis, she may well push out freezes on tax allowances and thresholds beyond 2028, leading to more and more people slipping deeper into income tax by stealth. But in the face of a global economic upheaval, there would be good grounds to rewrite the rules. 

‘The shock of a global trade war could give the Government the cover to ditch its rules and follow some European countries that have chucked away the fiscal handbrakes. In the light of external shocks such as this, the bond markets might be forgiving of an about-turn that averts the need for economically damaging tax rises on businesses and households, or further spending cuts.' 

Pensions and investments 

‘Above all, whether investments are held in pensions, ISAs or elsewhere the key is not to panic. We see time and again that economic shocks hit equity or bond markets in the short term but that in the medium to long term they recover. 

‘It is easy to think about selling or switching to “safer” assets when you see your portfolio go into the red but that is usually not the best policy. Amid uncertainty and periods of turbulence, sometimes the best course of action is to take a few deep breaths, sit tight and wait for the dust to settle rather than make knee-jerk decisions.  

‘A portfolio that was already well positioned ahead of this would include gold, some value stocks in more defensive sectors and government bonds, and would be having less of a rollercoaster ride than one devoted to growth stocks. That’s the case for always consistently having a well-diversified portfolio, rather than trying to cobble one together in haste when markets are very volatile and may well remain so over the coming days. 

‘Defined benefit pensions should be largely unaffected as their payouts are mostly fixed and guaranteed, but movements in interest rates can affect their transfer value, with higher rates generally meaning someone will be offered a lower sum to transfer out. As mentioned, the rates outlook is far from clear but in any case, most DB pension holders are best off retaining what is usually a very favourable pension arrangement. 

‘For those with defined contribution pension pots, which includes most private sector workplace pensions, as long as they are not close to retirement the impact is hopefully muted as they do not need to access their funds. While they might see the value of their pot take a dip – depending on how it is invested – in the coming days, that's no reason to panic or change things. In fact, their contributions could be picking up equities more cheaply, which is one of the benefits of regular investing – whether into a pension or an ISA. 

‘What such savers can learn from events like this is that market volatility does occur now and again and there are steps that can be taken to lessen the impact if it should happen in the future when they are on the verge of retirement.  

‘For the majority who are not confident with investment management, the potential risks we see here are a reminder that ongoing advice can be the answer once a substantial pot has been built up – even if retirement is far on the horizon. Even for those who want to go it alone for most of their working life when they are accumulating funds into their pension, advice can be hugely benefitial when it comes to decisions on how to access their funds, how to keep the pot invested as they draw down on it, and how to plan their retirement. 

‘Those who want to go it alone can make sure they diversify investments as the years go on towards retirement. When they are five years or so from the date when they want to start accessing funds, it is usually a good idea to take some risk off the table by raising exposure to more stable assets like government bonds and to start devoting some of the pot to cash or cash-adjacent investments. This means that they will then be able to take their tax-free cash and/or their first year or two of income from that portion of the pot rather than having to sell equities that have recently fallen in value. 

‘Those thinking of buying an annuity will also be subject to a certain amount of interest rate uncertainty. If rates stay higher for longer, they may get a better annuity income for the same sum, and if lower then vice versa. But as we have observed, the rates outlook is very clouded so those thinking of devoting a portion of their DC pension pot to buying an annuity should take advice and probably avoid trying to time their purchase according to the rates outlook.’ 

Savings and mortgages 

‘As interest rates could potentially go either way as a result of this tariff bombshell, the knock-on effect on the rates that banks pay on savings and charge on mortgages is also very uncertain. 

‘While savings rates might be more tied to the BoE’s benchmark rate, mortgage rates tend to be influenced also by bond yields. Global economic uncertainty can cause bond market volatility so that’s an added variable that could swing mortgage rates. 

‘But the key outcome here is whether central banks – the Fed, the BoE and the ECB – react to any inflationary effects by hiking rates, or whether they overlook short-term and possibly one-off price rises to look at the real economy and potentially even cut rates more than is currently expected.’