There’s fear in some quarters of another Donald Trump presidency but will the economics be that bad?
Not a single vote has been counted but the policies of a possible second Trump presidency have already influenced financial markets.
The cost of US and UK borrowing – measured through 10-year revenue-raising instruments called bonds – has been upped as traders eyed the price-rising impact a Trump presidency could have on the world’s biggest economy.
If Trump clinches victory could we see global economic repercussions?
A signature policy of his – tariffs – could make things worse for US consumers, in turn hurting the world economy of which the UK is a part.
Precise detail on what tariffs Trump would apply on what goods and from where remains to be seen. He’s said all goods coming into the country could be slapped with a 10% tax.
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Goods from China are going to be particularly hit with an anticipated 60% levy.
Why tariffs?
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The hope is that by making imports more expensive goods made in the US will be more competitive and comparatively cheaper. More people would buy those things and life would be better for US producers, the thinking goes.
If US producers are doing well, they’ll hire more people, Trump expects. He’s calculating that more people working for US companies doing well will make for a strong economy and happy voters.
Parts of America have been severely impacted by factory closures as companies move to parts of the world with cheaper wages and operating costs.
This accelerated since the 1990s when the North American Free Trade Agreement (NAFTA) made it easier and cheaper to export to the US, reducing the incentive to produce in the country.
Image: Donald Trump campaigns in North Carolina. Pic: Reuters
Blue-collar workers, traditionally not college-educated, lost and continue to lose out majorly from plant closures. These are the voters Trump is targeting and who form his base of support.
It’s worth noting Trump isn’t the only fan of tariffs with the Biden administration implementing them on Chinese electric cars, solar panels, steel and aluminium as it sought to protect the investment it had made in such industries from cheap and heavily subsidised goods.
What will the effect be?
China, unsurprisingly, will be levied the highest and experience the greatest direct strike.
The hit will be “notably negative”, according to analysis from the National Institute of Economic and Social Research (NIESR), a leading thinktank.
It will face short-term pressures on manufacturing and trade with its gross domestic product (GDP) – the measure of everything produced in the country – to fall about 1% a year for two years, NIESR says.
Economists at Capital Economics quantify the cost at about a 0.5% to 0.7% reduction in GDP.
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7:56
UK should ‘expect’ Trump tarrifs
The US
That said the effects will be felt most keenly by those living in the US who will pay more.
If usually cheap imported goods get pricier that probably will cause the overall rate of inflation to rise.
Here the knock-on influences emerge. Higher inflation will just mean more expensive borrowing through upped interest rates as the US central bank, known as the Fed, will act to reduce inflation.
There’s no mystery around how high interest rates can weigh on an economy, the literal goal of hiked rates is to suppress buying power and to take money out of the economy.
Fears of the US ending up in recession spooked stock markets and triggered a global sell-off just three months ago.
Stock prices can seem nebulous but they impact the value of most people’s pensions.
A recession isn’t predicted but the US economy will falter, NIESR says.
Economic growth in America, as measured by GDP, would decrease by around 1.3 to 1.8 percentage points over the next two years, depending on whether the countries it trades with retaliate, upping their own duties on US goods.
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As tariffs make exporting less favourable exporters will simply export less, meaning less is produced and the worldwide economy slows.
The blow to the global economic output could be a 2% GDP drop after five years of Trump being in office, according to NIESR.
The consequences of Trump tariffs won’t just be short-term, NIESR forecasts, with global GDP still lower than it would have been without the imposition even in 15 years’ time.
Specific countries will be hit worse than others: Mexico and Canada for whom the US makes up roughly 80% and 50 % of trade, respectively will experience the greatest pain.
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It doesn’t look too bad for the European Union (EU) by comparison and could even be good for the bloc, some say.
NIESR reckons the euro area will be less badly affected than the UK over five years but the immediate impact will be worse.
The good news first: if Trump doesn’t lean too heavily into tariffs and focuses more on cutting taxes to grow the economy that bump could lead to stronger demand for European goods, notwithstanding import levies, suggests research from economic advisory firm Oxford Economics.
The bad news: it won’t look so good if the US economy turns bad through more aggressive policies like high tariffs on more goods, the firm says. That would mean a “large” fall in European exports, it adds.
And finally, some neutral news: not even high tariffs would be inflationary for the continent, Oxford Economics expects. Reduced demand and lower goods prices would just offset the higher import costs, it says.
Another firm, Capital Economics, also isn’t too concerned about the European economy under Trump.
“Smaller than many fear”, is how it described the suspected short-term macroeconomic consequences.
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How does the US election work?
What about the UK?
It’s got to be bad for the UK, right? The US is the country’s biggest trading partner after all, making up just under 20% of our trade
Again, not so. The UK doesn’t even make it into the top 10 worst-affected countries under NIESR’s research.
Capital Economics anticipates the knock would be small and maybe even positive, though inflation may be higher than if there were no second Trump administration.
But there’s no consensus on this point with NIESR forecasting GDP will be lower because of fewer exports and higher global interest rates.
This downturn would slow UK exports to other countries, NIESR says.
NIESR estimates UK GDP could be between 2.5% and 3% lower over five years and 0.7% lower in 2025. So instead of the 1.5% rate of GDP predicted by the IMF for next year, the economy would grow by 0.5%.
The head of the UK’s biggest mortgage lender has said he expects two more interest rate cuts this year, making borrowing cheaper.
Chief executive of Lloyds Banking Group Charlie Nunn told Sky News he expected the Bank of England to make the cuts two more times before 2026, likely bringing the base interest rate to 3.75%.
Two cuts are currently anticipated by investors, the first of which is due to be a 0.25 percentage point reduction next month.
The banking group owns Halifax and Bank of Scotland, making it the biggest provider of mortgages.
Mr Nunn also forecast house price growth of between 2 and 3%.
“We helped 34,000 first-time buyers in the first half [of the year] alone, 64,000 last year. And of course, it was driven by the stamp duty changes in Q1 [the first three months of the year]. So Q2 [the second three months] was a bit slower, but we continue to see real strength in customers wanting to buy homes and take mortgages. So we think that will continue,” he said.
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Expect two more rate cuts this year, says Lloyds boss
It comes as the bank reported higher profits than City of London analysts had expected.
Half-yearly profit at the lender reached £3.5bn as people borrowed and deposited more.
The bank has benefited from high interest rates, set at 4.25% by the Bank of England to control inflation, which have made borrowing more expensive for households and businesses.
Over the last six months, the difference between what Lloyds earns on loans and what it pays out rose.
Mr Nunn told Sky News the profits were due to increased market share in mortgages and small business lending, as well as productivity improvements.
Despite this, Mr Nunn warned the chancellor against raising taxes on financial services, saying it was one of the highest taxed in the world.
The chairman of AO, the online electrical goods retailer, has been interviewed to become the next chair of state-owned broadcaster Channel 4.
Sky News has learnt that Geoff Cooper, a former boss of the builders’ merchant Travis Perkins, is among the candidates in the running to take on the post in the coming months.
Whitehall insiders said that Mr Cooper was now one of the shortlisted contenders awaiting news of whether they would get the nod from Ofcom, the media regulator and culture secretary Lisa Nandy.
In recent weeks, Sky News has revealed that those vying to replace Sir Ian Cheshire include Justin King, the former J Sainsbury boss; Wol Kolade, a private equity executive who has donated substantial sums of money to the Conservative Party; Debbie Wosskow, a start-up founder who already sits on the Channel 4 board.
Simon Dingemans, a former Goldman Sachs banker who sits on the board of WPP, the marketing services group, has also been shortlisted, according to the Financial Times.
Sir Ian stepped down earlier this year after just one term, having presided over a successful attempt to thwart privatisation by the last Tory government.
He was replaced on an interim basis by Dawn Airey, the media industry executive who has occupied top jobs at companies including ITV, Channel 5 and Yahoo!.
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The race to lead the state-owned broadcaster’s board has acquired additional importance since the resignation of Alex Mahon, its long-serving chief executive.
It has since been reported that Alex Burford, another Channel 4 non-executive director and the boss of Warner Records UK, is a possible contender to replace Ms Mahon.
A vocal opponent of Channel 4’s privatisation, which was abandoned by the last Conservative government, Ms Mahon is leaving to join Superstruct, a private equity-owned live entertainment company.
The appointment of a new chair is expected to take place by the autumn, with the chosen candidate expected to lead the recruitment of Ms Mahon’s successor.
The Department for Culture, Media and Sport has declined to comment on the recruitment process, while Mr Cooper could not be reached for comment.
A British space surveillance company which has won a string of government contracts will this week announce a £5.4m fundraising to expand its global network of advanced telescopes.
Sky News understands that Spaceflux, which was founded three years ago, has secured the injection of capital in a round led by the UK Innovation & Science Seed Fund (UKI2S), which is managed by Future Planet Capital, as well as Foresight Group and Blackfinch Ventures.
Seraphim Space, the listed specialist investor in space-related companies, is also contributing funding.
Spaceflux uses artificial intelligence and optical sensors to track satellites and debris across all orbits, with its daylight tracking capability meaning it can expand the observation window beyond night-time operations.
Its provision of space situational awareness technologies is in growing demand amid warnings that a week-long disruption to satellite navigation could incur a £7.6bn hit to the UK economy.
In a statement to Sky News, Marco Rocchetto, CEO and co-founder of Spaceflux, said: “As space becomes increasingly essential to our economy, environment and daily lives, it is also becoming more congested and contested.
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“This investment strengthens our ability to protect satellite technology that delivers crucial insights to Earth around the clock, reducing collision risks, and supporting a safer, more sustainable space environment for future generations”.
The valuation at which the funding was being committed was unclear on Thursday.
Spaceflux, which serves government and commercial customers, has been the exclusive provider of geostationary satellite tracking for the Ministry of Defence and UK Space Agency since 2023.
Alex Leigh, an investment director at UKI2S, said: “This investment marks a significant step in the convergence of defence and space, where dual-use technologies are becoming increasingly important to UK capability.
“Spaceflux’s technology offers critical insights to help monitor and safeguard orbital assets – supporting both national security and the wider commercial ecosystem.
“The company is well-positioned to scale its impact and meet the needs of customers navigating an increasingly complex space environment.”