Jerome MontaChief BCIS economist Dr David Crosthwaite considers the Trump administration’s new “reciprocal” tariffs regime and finds the UK may benefit from overseas firms looking to sidestep higher duties elsewhere.
While I don’t think that the direct impact of the tariff regime will affect the UK construction sector significantly, indirect impacts could well be substantial.
The uncertainty for businesses is likely to act as a brake on investment at a time when the government is keen to attract private investment to fund infrastructure delivery.
In addition, firms may well rein in any investment planned on fixed capital until they have an understanding of the potential hit to their bottom line from the tariffs.
However, on the flip side, and assuming that the quoted tariffs are long-term and can’t be negotiated via a trade deal, then, given the UK’s lower tariff rate relative to other countries, foreign businesses may look to the UK to set up manufacturing plants here so they can avoid some of the higher-level tariffs.
An example of that is Apple moving some of its production to India, which has a lower rate relative to China.
In normal circumstances the expected forthcoming interest rate cuts would be positive news for construction, with any fall in the cost of borrowing welcomed and likely to encourage investment. Unfortunately, these are anything but normal times.
I remain unconvinced that the base rate will fall to 3.5% by the end of the year. Tariffs by their nature tend to be inflationary, so while the Bank of England may need to stimulate the wider economy, they will also be concerned about inflation.
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