Economy

Retail sales increased 0.2% on the month, better than the downwardly revised decline of 1.2% the prior month but below the Dow Jones estimate for a 0.6% increase.
The so-called control group, which strips out non-core sectors and feeds directly into gross domestic product calculations, rose a better than expected 1%.
Also, the New York Fed’s measure of factory activity in the region posted an unexpectedly sharp drop for March.

Consumers spent at a slower than expected pace in February, though underlying readings indicated that sales still grew at a solid pace despite worries over an economic slowdown and rising inflation.
Retail sales increased 0.2% on the month, better than the downwardly revised decline of 1.2% the prior month but below the Dow Jones estimate for a 0.6% increase, according to the advanced reading Monday from the Commerce Department. Excluding autos, the increase was 0.3%, in line with expectations.

The sales number is adjusted for seasonal factors but not for inflation. Prices rose 0.2% on the month, according to a previous Labor Department report, indicating that spending was about on pace with inflation.
The so-called control group, which strips out non-core sectors and feeds directly into gross domestic product calculations, rose a better than expected 1%.
“Not a great report, but one still in positive territory despite how pessimistic consumers are about the future,” said Robert Frick, corporate economist with Navy Federal Credit Union. “But the main factor in consumer spending is consumer income, and that’s growing at a good rate and had an impressive leap in January.”
Online spending helped boost the sales number for the month, with nonstore retailers reporting a 2.4% increase. Health and personal care showed a 1.7% gain while food and beverage outlets saw a 0.4% increase.
On the downside, bars and restaurants reported a 1.5% decrease while gas stations were off 1% amid falling prices at the pump.

Sales overall increased 3.1% on a year over year basis, better than the 2.8% inflation rate as measured by the consumer price index.
One other downbeat note from the report was a steep revision for January, which originally was reported as a 0.9% decline.
The release comes amid heightened worries over economic growth, particularly as President Donald Trump engages in an aggressive tariff battle with leading U.S. trading partners. Economists worry that the tariffs will drive up inflation and slow the economy.
“Consumers and businesses are expected to pull back on spending when they’re unable to make informed decisions about the future of the economy and their place within it,” said Elizabeth Renter, senior economist at personal finance site NerdWallet. “Currently, direct economic policies and broad federal policies with indirect economic impact are in flux, making informed decisions difficult.”
Some indicators, such as the Atlanta Federal Reserve’s GDPNow tracker of economic data, are showing that growth could be negative in the first quarter, though the solid reading for control retail sales could result in an upward revision later today.
In other economic news Monday, the New York Fed’s measure of factory activity in the region posted an unexpectedly sharp drop for March.
The Empire State Manufacturing Survey posted a reading of -20 for the month, representing the difference between companies seeing expansion against contraction. The number indicated a drop from the 5.7 level in February and was well below the estimate for -1.8.
New orders posted a sharp slide, with the index tumbling to -26.3, down 14.9 points. Shipments also were off significantly. On inflation, indexes for prices paid and received also rose. More

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersHello. Incredibly, a week is coming up without a major US tariff deadline in it, but never fear, as long as Donald Trump is in the White House and commerce secretary Howard Lutnick is allowed on television the entertainment will continue. Further evidence that the Trump tariff policy is genuine chaos (as I thought it would be) and not a cunning plan arrived last week via anonymously sourced news stories of administration infighting, with Lutnick the main target of blame. “The only one who thinks it’s chaotic is someone who’s being silly” was the former Wall Streeter’s unconvincing response. Last week the first set of non-China Trump tariffs actually happened, the 25 per cent steel and aluminium duties. Today’s pieces are on the various responses to them, specifically from the EU, Canada and the UK. The Charted Waters section, which looks at the data behind world trade, is on how the US is dragging down forecasts for global growth next year.Get in touch. Email me at alan.beattie@ft.comThe EU’s well-oiled rebalancing machineThe steel and aluminium levies are entry-level Trump protectionism, placed on products whose markets have in any case long been distorted by state support and trade defence instruments (anti-dumping and anti-subsidy duties). They partly restored tariffs from Trump’s first term, which in the EU’s case were suspended after a deal with the Biden administration, and added a lot more. Brussels didn’t have to think too much about the response, pushing the button setting the machine of countermeasures in motion, reinstating the tariffs it had suspended during the truce and starting consultations on expanding them. The EU insists these tariffs are for “rebalancing” rather than retaliation. Classifying Trump’s tariffs as “safeguards” (which are imposed to deal with a flood of imports rather than those unfairly priced) allows Brussels to impose counter-duties immediately. Is that WTO-legal? Very dicey, but since the US has frozen the WTO Appellate Body that would rule on the issue, Brussels will keep doing it.The tariffs were as usual directed at supposedly politically sensitive areas, such as soyabean farmers in Louisiana, home state of the House of Representatives majority leader Mike Johnson. But as I’ve argued before, the retaliation game has changed. Supine Republican senators and congressmen are highly unlikely to make a big fuss about Trump’s trade war either privately or publicly.The real challenge for the EU is yet to come, in the form of responding to future bogus “reciprocal” tariffs or punitive duties on champagne or whatever Trump’s brains trust comes up with that day, which are currently scheduled for April 2, though frankly who knows?The moose that roared*“Wow, Canadians seem so placid and diffident, I didn’t think they’d react like this” said someone who’s never met a Canadian trade negotiator. If the US tariff war against Canada were a baseball game, you’d have to be wondering if Trump was doing a Shoeless Joe Jackson and deliberately losing it for money. On the face of it, his strategy appears to be to build up political resistance in Canada while undermining his own negotiating position and trashing the US economy. It’s incredible to watch.Sorry if this all seems obvious and repetitive, but let’s go through last week’s events to underline not just the destructiveness but the utter ineptitude. Once again, following the pattern with Colombia in the first week of his administration and then Canada and Mexico in the third and the seventh week, Trump threatened and then partially lifted or backed away from imposing tariffs.This time it involved threatening extra-high 50 per cent import duties on steel before retreating after speaking with Doug Ford, premier of the Canadian province of Ontario, who had imposed export taxes on electricity sales to the US. The first couple of times it took the Canadian prime minister to face down Trump; now it’s the head of a single province. By the summer Trump will be running scared of a jug of maple syrup.It’s a no-brainer for Canada to confront rather than placate Trump, since he demanded first the impossible and now the unconscionable. He’s moved on from targeting almost non-existent fentanyl smuggling to make a literally existential demand of annexing Canada, but without yet imposing the tariffs to impress on Canadians the cost of resistance. Trump has contrived to build a rock-solid political consensus against him in Canada and rocketed the relatively Trump-hostile Liberals back up in the polls. The same is true in Mexico, where President Claudia Sheinbaum is enjoying stratospheric popularity ratings.If you believe that this is all a cunning plan to strike fear into the hearts of trading partners and force them to sign the mythical Mar-a-Lago accord to realign the dollar and buy US perpetual bonds, it’s not going very well. Any Canadian leader who goes to Mar-a-Lago and agrees to appreciate the Canadian dollar and indefinitely lend money to the US is likely to be clapped in irons for high treason on return. *It’s a movie reference. Yes, film nerds, I know the premise of the original is actually a small country deliberately losing a war to the US, but some puns are too good to pass up.Britain takes the punch and decides to talkThe UK tried something a bit different in response to the steel and aluminium tariffs, that is do nothing. Given that tariffs mainly hurt the economies that impose them you might regard this as an economically optimal approach, frequently suggested by people like me who don’t have to get elected to anything.In practice it’s more likely to reflect simple pragmatism than a heart-warming return to the UK’s free-trade history. Compared with the EU, Britain is a small steel producer that doesn’t export much to the US. Certainly, an attempt to run a systematically more liberal trade defence policy under the Conservative government lasted about ten seconds when it came to protecting British steelmakers from Chinese imports.More interesting, and risky, is Sir Keir Starmer’s government’s idea of signing some kind of trade and tech deal with the US to keep the Trump tariff wolf indefinitely from the door. I assume this will be a cobbled-together set of unilateral announcements rather than an actual preferential trade agreement (PTA), which even under this spineless Congress would be a slow process. The obvious candidate, given that Starmer’s government seems to have fallen under the spell of the artificial intelligence salespeople, is that the UK will please Trump’s tech pals by weakening its plans for data and digital regulation.Even if you think this is a good idea (not my field, but my instinct is to be sceptical), the UK will get nothing back except a nonbinding promise to hold off tariffs or whatever other form of coercion Trump might favour in the future. They should first ask the Canadians and Mexicans how well agreeing the US-Mexico-Canada (USMCA) deal during Trump’s first term to forestall US trade aggression has worked out.This mini-deal seems to be strongly associated with UK ambassador Lord Peter Mandelson, about whose judgment over trade agreements I have already expressed reservations. My doubts were not dispelled when Mandelson appeared recently on the US Sunday morning political talk shows and so flatly contradicted the government line on Ukraine that he had to be corrected the next day by a minister. If you’re going to change your tech regulation plans, do it on its own merits. Don’t imagine that you’re going to get paid handsomely in durable trade concessions by Trump as a result.Charted watersGlobal economic growth is likely to slow next year, but note this is largely driven by the US (and Japan), while the EU economies are going to do pretty well.Trade linksThe trading system’s going to hell, as usual. And yet, as usual, actual goods trade growth looks OK just for the moment, according to the WTO.The FT examines how tariffs and cuts to federal employment are weakening the US economy.The Economist examines Europe’s potential leverage over the US in a trade war and concludes it’s bigger than you might think. Contrary to Trump’s wishes, automakers are not moving production to the US to beat his tariffs.Tej Parikh in the FT’s Free Lunch column argues that on a decades-long view Canada could be an economic powerhouse.The FT’s Unhedged newsletter argues that the dollar may have stopped being a barometer of Trump’s actions on tariffsTrade Secrets is edited by Jonathan MoulesRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up hereFT Swamp Notes — Expert insight on the intersection of money and power in US politics. Sign up here More

Global growth is expected to slow from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, according to the OECD. It had previously forecast 3.3% global economic growth this year and next.
The U.S.’s annual GDP growth is also projected to fall to 2.2% in 2025 and 1.6% in 2026 — down from earlier forecasts of 2.4% this year and 2.1% next year.
“A series of recently announced trade policy measures will have implications for the economic outlook if sustained,” the OECD said.

Both U.S. and global economic growth is set to be lower than previously projected as President Donald Trump’s proposed tariffs on goods imported to the U.S. weigh on growth, according to the latest estimates from the Organisation for Economic Co-operation and Development.
“Global GDP growth is projected to moderate from 3.2% in 2024, to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending,” the OECD said Monday in its interim Economic Outlook report.

“Annual GDP growth in the United States is projected to slow from its strong recent pace, to be 2.2% in 2025 and 1.6% in 2026.”
In its previous projections, published in December, the OECD had estimated 3.3% global economic growth this year and next. The U.S. economy had been expected to grow 2.4% in 2025 and 2.1% in 2026.
Mathias Cormann, secretary-general of the OECD, on Monday said that the uncertainty around trade policy was a key factor in the organization’s projections.
“There’s a very significant level of uncertainty right now, and you know it is clear that the global economy would benefit from increases in certainty when it comes to the trade policy settings,” he told CNBC’s Silvia Amaro.
In its report, the OECD said its latest projections were “based on an assumption that bilateral tariffs between Canada and the United States and between Mexico and the United States are raised by an additional 25 percentage points on almost all merchandise imports from April.”

If the tariff increases were lower, or applied to fewer goods, economic activity would be stronger and inflation would be lower than projected, “but global growth would still be weaker than previously expected,” the report noted.

Canada and Mexico, both on the receiving end of tariffs imposed by the U.S., saw their growth outlooks slashed dramatically. Canada’s economy is now expected to grow 0.7% this year, down from the previous 2% estimate, and Mexico’s is projected to shrink by 1.3% — compared to a previously estimated 1.2% expansion.
The OECD also updated its inflation forecast, saying price growth was set to be higher than previously expected, but would ease due to moderating economic growth.
“What we see is that inflation will continue to go down, but that inflation is expected to go down more slowly,” Cormann told CNBC. “What we are suggesting is that some of the measures in relation to trade, some of the measures in relation to tariffs, and the related policy uncertainty, certainly are having an impact on inflation.”
Headline inflation in the U.S. is now expected to come in at 2.8% in 2025 according to the latest figures, up from the 2.1% December estimate, while the projection for G20 economies has risen from 3.5% in December to 3.8% in Monday’s report.
“Core inflation is now projected to remain above central bank targets in many countries in 2026, including the United States,” the OECD added.
OECD head Cormann said central bankers should now “remain vigilant.”
“Certainly, if inflation expectations remain anchored, we do believe that in even major economies like the United States and the United Kingdom, there is scope for further policy easing,” he said, but pointed out that in some major economies the pace of inflation easing has slowed or inflation has picked back up.

Trade policy tensions

The OECD linked much of its update to economic growth and inflation estimates to geopolitical and trade tensions — issues that have dominated markets in recent weeks and months.
“A series of recently announced trade policy measures will have implications for the economic outlook if sustained,” the OECD said, pointing to the tariffs imposed, or threatened by, Trump, and potential retaliatory duties imposed by its trading partners.
Trump’s tariff policies have been marked by uncertainty over recent weeks, as negotiations and retaliation threats continue. The president has flipped-flopped over when tariffs will be imposed, which goods they will apply to and how high they will be, although he insisted last week that he wasn’t “going to bend at all.”
“If the announced trade policy actions persist, as assumed in the projections, the new bilateral tariff rates will raise revenues for the governments imposing them but will be a drag on global activity, incomes and regular tax revenues. They also add to trade costs, raising the price of covered imported final goods for consumers and intermediate inputs for businesses,” the OECD said.
Asked if he agreed with U.S. President Trump’s position that his trade policies could involve short-term pain, but long-term benefits for the country’s economy, the OECD’s Cormann said that lower global economic growth and higher inflation would have “flow on consequences” for the U.S.
If trade tariffs were reversed, there would be a “positive impact” on global growth, and therefore also U.S. economic growth, he said.
Cormann said that it was important to keep markets open and ensure they are functional and to have “rules based trading system in good working order,” adding that any issues should be resolved through cooperation and dialogue.
“We would encourage everyone to engage with each other and to honestly and openly, work through the issues at hand and try and find the best possible way forward without having to resort to tariffs and other trade restricting measures,” he said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump is the Maga movement’s greatest asset and its greatest liability. The US president is a political genius. But he is also, in the memorable phrase, attributed to Rex Tillerson, his first secretary of state, “a fucking moron” when it comes to understanding policy.That tension between Trump the genius and Trump the moron is dangerous for the “Make America Great Again” movement that he created and leads. As a political actor, there is no denying that Trump has an intuitive genius that has enabled him to completely reshape American politics. Winning a second term in office by a decisive margin has given him absolute authority within his party. For now, Trump can do what he wants. The problem is that what he wants is likely to be very damaging to America.The most obvious example of the self-destructive nature of Trump’s policies is his obsession with tariffs. The US president cannot or will not understand that tariffs are paid by importers and that much of the cost will be passed on to consumers. He also regards unpredictability as a virtue. So tariffs are imposed, lifted and then reimposed, seemingly on a whim. The result is that businesses cannot plan ahead and that consumers and investors are panicking.In Trump’s first term, when his political authority was weaker and his advisers more conventional, the president’s aides were able to deflect some of his worst ideas. Officials sometimes ignored or reinterpreted his instructions, or even removed papers from his desk, in an effort to contain his instincts.But in term two, the president has surrounded himself with sycophants who want to “let Trump be Trump”. Howard Lutnick, his commerce secretary, assures us that Trump is “the most important, the smartest, the most capable leader in the world”. So the president can press ahead with policies that are likely to damage the majority of Americans in direct and tangible ways. Trump has done many outrageous things in the past, such as attempting to overturn the result of the 2020 presidential election. But few of his previous actions affected the daily lives of ordinary Americans. Causing a recession, higher inflation or a stock market crash would be different. Some 60 per cent of Americans own shares, often in their retirement funds. Many will be dismayed by the recent slump in share prices. Consumer confidence is also falling, as inflation expectations rise. The economy was rated the most important issue by voters in the last election. But Trump’s ratings for handling the economy have already turned negative. There may be more pain to come as cuts in the federal workforce ripple out beyond Washington. Possible cuts in social security or government-funded health benefits would also hit millions.Picking fights with America’s neighbours and allies might seem to fall into the category of issues that the average voter can shrug off. But threatening to annex Canada (another moronic idea) has started a needless trade war with a peaceable neighbour. If the Canadians retaliate by forcing up the price of exports of oil or electricity to the US, ordinary Americans will suffer. Tariffs on Mexico could also raise supermarket prices. Some 50 per cent of America’s imported fruit comes from Mexico. The profits of the big three US car companies could be wiped out by a 25 per cent tariff on imports from Canada and Mexico.The economic effects of Trump’s policies are likely to determine the future of his presidency. But Trump is also putting Americans at risk in other ways. Sacking FBI agents and intelligence officers — and appointing conspiracy theorists as director of national intelligence and head of the FBI — is a recipe for an eventual high-profile disaster. Putting another conspiracy theorist, Robert F Kennedy Jr, in charge of the health department creates another set of obvious dangers. Watching Trump unleash his inner moron on the American government reminds me of a prediction I heard from a prominent US businessman in January. “If Trump does half the things he’s promising to do, this whole thing will blow up. And it will discredit Maga for a generation.”The obvious mechanism for a blow-up would be a huge defeat for the Republicans at the next elections. But the midterms are almost two years away. Trump and his minions can do a lot of damage to America’s institutions, including the electoral system, in that time. If the administration begins to obviously flounder, Trump is likely to respond with a hunt for scapegoats and increased authoritarianism. But the experience in other damaged democracies is that even a partly rigged system can work well enough to inflict electoral defeats on far-right populists. Jair Bolsonaro lost the Brazilian presidential election in 2022 (and has been charged with attempting a coup afterwards). Poland’s Law and Justice party lost power in elections in 2023. Viktor Orbán of Hungary, who has been prime minister since 2010 and is much admired by the Maga movement, is trailing in the polls ahead of elections expected next year — as the Hungarian economy struggles. There were anti-Orbán demonstrations in Budapest at the weekend. Rightwing populists can often win the culture wars. But mishandling the economy is much harder to explain away. If Maga makes Americans poorer, Trump and his movement are likely to pay the price.gideon.rachman@ft.com More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereToday’s agenda: Netanyahu plans to sack Shin Bet chief; tariffs complicate Fed’s job; Europe’s “peace dividend” ends; Alibaba’s AI pivot; and young people lose trust in the stateGood morning and welcome back to FirstFT. We start the working week with a look at the sanctions-proof bets investors are using as they seek profits from Donald Trump’s rapprochement with Vladimir Putin.What’s happening: Hedge funds and brokers have been scoping out how to trade Russian assets that have been shunned by the west but which they believe could rally sharply if the US president relaxes sanctions as part of a deal to broker a ceasefire in Russia’s war against Ukraine. Some are hunting for bonds of Russian companies that were considered almost worthless following the 2022 invasion of Ukraine, but which are now being marked up in some investors’ internal valuations. Others have been using Kazakhstan’s tenge as a proxy for the rouble because of the country’s economic ties with Russia, although such trades are hard to do in size. Why it matters: International markets for Russian assets evaporated following the invasion of Ukraine, as sanctions severed banks from the global financial plumbing and the country suffered a huge flight of capital. Russia’s central bank raised interest rates as import costs surged and labour shortages mounted, particularly as the Kremlin began a crash programme of war production. The rouble trade is a bet that this dynamic will reverse, particularly if Russians who fled the country in fear of being mobilised come back with savings that they stashed in Georgia, Armenia and other nearby nations.Here’s more on the significant risks these trades face, and we have more updates on the war and regional security below:Peace talks: Trump said he would be speaking to Putin tomorrow, as the US tries to broker a ceasefire deal. European defence: Trump’s threats have pushed neutral Switzerland to call for closer ties to Nato and the EU, its new defence minister has said.Here’s what else we’re keeping tabs on today:Economic data: The OECD publishes its interim economic outlook while Rightmove issues its UK house index.Nvidia: The chip giant’s five-day artificial intelligence conference starts in San Jose, California.UK regulation: Chancellor Rachel Reeves will discuss plans to restrict merger investigations by the competition watchdog when she meets regulators at Downing Street today.St Patrick’s Day: The feast day of Ireland’s patron saint is celebrated around the world. Joseph Kennedy III, former US special envoy to Northern Ireland, reflects on the region and its lessons for transatlantic ties.Join FT experts next Thursday for a subscriber-only webinar, as they discuss Ukraine’s future with Russia’s full-scale invasion entering its fourth year. Register for free.Five more top stories1. Benjamin Netanyahu said he would sack his domestic spy chief, one of the last security officials still in post since Hamas’s October 7 attack. The Israeli prime minister said he had “a continuing lack of confidence” in Ronen Bar, head of the Shin Bet intelligence agency, that “only grew with time”. Here’s why the move could spark more political turmoil.2. Uncertainty about Trump’s tariffs is complicating the Federal Reserve’s job, with the US central bank weighing fears they could stoke inflation or trigger an economic slowdown — or both. Economists warn that rate-setters risk relying too much on backward-looking data when they should be depending more on a “forecast framework”.3. Exclusive: European companies that have added a US listing often do not see an uplift to their valuations, the Financial Times has found, challenging claims made by some executives. But two-thirds of the 12 companies surveyed did enjoy greater liquidity in their shares after the move. Here’s more from the FT analysis.4. GE Aerospace chief Larry Culp received $89mn in pay last year, making him one of the highest-paid executives among US companies that have reported remuneration so far this year. Following GE’s break-up of its corporate enterprises, completed last April, the share price of GE Aerospace has risen 45 per cent. Read the full story.5. The US should use fees imposed on Chinese-built vessels to invest in its own shipbuilders, the new head of America’s maritime regulator has said. Louis Sola, who was appointed chair of the Federal Maritime Commission in January, told the FT that the US needed to offset China’s subsidies for its own shipbuilding industry and “fight fire with fire”.News in-depth© FT montage/Getty ImagesEuropean countries have collectively saved hundreds of billions of euros a year in recent decades — a postwar “peace dividend” — as they drove down defence spending and freed up resources for other priorities including their welfare states. But after Trump’s threat to scale back US support for Europe, the continent now faces a brutal reckoning as it embarks on a dash for re-militarisation.We’re also reading . . . Alibaba’s AI pivot: The Chinese tech giant is establishing a lead in a fiercely competitive sector and its billionaire founder Jack Ma is back in favour.Starmer and Reeves: The prime minister and his chancellor need to view the hard times coming upon Britain as an opportunity as well as a crisis, writes Martin Wolf.Democrats’ choice: The party needs to come up with a coherent policy stance if it wants to fight Trump, writes Rana Foroohar.UK’s welfare problem: Some 3.5mn working-age adults are trapped on health-related benefits with neither the incentive nor the support they need to enter employment.Chart of the dayYoung people in Greece and Italy are among the most dissatisfied with public services and confidence in institutions, according to an FT analysis of Gallup data. Experts have pinned the growing unhappiness on factors such as political polarisation, stagnating quality of life and difficulties in getting on the property ladder.Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . Fancy a honeybun latte, or a spiced cold brew with cinnamon and chilli? Put down your americano and spice up your coffee orders with these kooky caffeine hits.The toffee apple pie coffee at Established in Belfast Recommended newsletters for youOne Must-Read — Remarkable journalism you won’t want to miss. Sign up hereNewswrap — Our business and economics round-up. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK growth will be weaker than previously expected this year and next, according to the OECD, as chancellor Rachel Reeves struggles to inject momentum into the economy.The Paris-based body on Monday trimmed its UK GDP growth estimate for 2025 to 1.4 per cent, a 0.3 percentage point reduction from its previous calculation, following a disappointing recent economic performance. The OECD added in its interim economic outlook that UK growth will slow to 1.2 per cent in 2026 after cutting its forecast for the year by 0.1 percentage point. The downgrade comes ahead of Reeves’ high stakes Spring Statement on March 26, when official forecasts are expected to show a much weaker GDP outlook.Countries across the world, including the UK, are also braced for mounting pressures from US President Donald Trump’s trade war.The latest OECD forecasts factor in the 25 per cent tariffs imposed by Trump on imports from Canada and Mexico, his 20 percentage point levy increase on China, as well as US taxes on steel and aluminium that affect nations including the UK.The US tariffs will drag on global activity, as well as add to trade costs and raise consumer goods prices, the OECD said. The interim outlook downgraded output predictions for a dozen G20 countries, leaving the UK set to have the second-highest growth in the G7 in 2025 after the US. But Reeves is searching for new sources of growth ahead of her Spring Statement after the UK economy unexpectedly contracted by 0.1 per cent in January, driven by weakness in manufacturing, according to official figures. Growth has largely stalled since May last year.Reeves is set to receive a weaker growth forecast from the UK fiscal watchdog that will compound pressures on the public finances at a time when Britain and other European countries are accelerating efforts to boost defence spending given Trump’s wavering military commitment to the region. The Office for Budget Responsibility is widely expected to say on March 26 that the headroom against Reeves’ key fiscal rule will be wiped out by higher borrowing costs and weaker growth, forcing her to pencil in fresh public spending cuts. The OBR in October predicted UK GDP growth of 2 per cent in 2025 and 1.8 per cent in 2026, but forecasters at the IMF and Bank of England have been less optimistic.OECD chief economist Álvaro Pereira called for action to keep UK borrowing contained, saying: “UK debt is fairly high, so it is time to make sure that the fiscal situation remains under control.” In its interim outlook, the OECD said central banks around the world would need to remain “vigilant” given ongoing inflation pressures.It forecast that UK inflation will decelerate to 2.9 per cent this year and then to 2.3 per cent in 2026, giving the BoE the chance to further cut interest rates.The BoE is widely expected to keep rates unchanged when it meets on Thursday after it trimmed them by a quarter point to 4.5 per cent last month.  The consequences for global inflation from rising trade barriers will depend on the extent of further escalation, the OECD said. “A one-off rise in the relative price of tradeable goods due to tariffs is likely to be accommodated, but a sequence of such changes, or signs that inflation expectations are rising amidst still-tight labour markets would likely require higher policy rates than would otherwise be the case,” it added. Reeves earlier this month acknowledged a tougher UK economic outlook given the worsening global trade hostilities. “I don’t want to see tariffs increased,” Reeves said at an event hosted by Make UK, a lobby group for manufacturers.On Monday she said: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board.“A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump’s trade war is taking a “significant toll” on the global economy, the OECD has warned, as it cut growth forecasts for a dozen G20 countries.Global growth will slow this year and next, from 3.2 per cent last year to 3.1 per cent and 3 per cent in 2025 and 2026 respectively, while inflation will be stickier than previously expected, the Paris-based OECD said in its interim outlook as it urged countries to avoid a “ratcheting up of retaliatory trade barriers”. GDP growth in the US will decelerate from 2.8 per cent last year to 2.2 per cent this year and 1.6 per cent in 2026, the OECD said. Higher trade barriers will contribute to persistent inflation, leading the Federal Reserve to keep interest rates unchanged until the middle of 2026, it predicted. “The message is clearly that trade uncertainty and economic policy uncertainty are having a significant toll,” OECD chief economist Álvaro Pereira told the Financial Times.The analysis — the OECD’s first attempt to quantify the economic drag from the early rounds of Trump’s trade war — suggests that few G20 countries’ growth prospects will remain unscathed, as businesses defer investment because of policy uncertainty and consumers are squeezed by higher goods prices. The biggest growth downgrades are to Canada and Mexico after Trump’s decision to levy 25 per cent tariffs on most imports from the US’s neighbours. Growth predictions for Canada were more than halved to 0.7 per cent this year and next, while Mexico is now forecast to drop into outright recession this year, contracting by 1.3 per cent. “Consumer confidence has come down in quite a few countries — in particular Canada, Mexico, the US and a few others,” said Pereira. A resurgence of inflation or downside surprises to growth could trigger a “rapid repricing” in financial markets, the OECD warned. Growth in the US this year will be 0.2 percentage points slower than the OECD previously expected, and half a point weaker in 2026 than previously forecast. Those predictions would still leave the US as the fastest-growing G7 economy in both years. Instead of decelerating, as previously predicted, inflation will now speed up from 2.5 per cent last year to 2.8 per cent in 2025. Core inflation is now projected to remain above central bank targets in many countries in 2026, including the US, the OECD added.Growth forecasts for the biggest three Eurozone economies have been trimmed, with the currency area predicted to expand by 1 per cent in 2025 and 1.2 per cent in 2026. UK growth forecasts were cut to 1.4 per cent this year and 1.2 per cent in 2026. Despite Trump’s imposition of 20 per cent additional tariffs on China, the OECD lifted the Asian country’s outlook for 2025, with growth tipped to be 4.8 per cent, followed by 4.4 per cent in 2026. By contrast, the growth forecast for Japan was curbed by 0.4 percentage points to 1.1 per cent this year, and India’s growth will be half a point lower than previously predicted at 6.4 per cent. “Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers between countries,” the OECD said. “A broad-based further increase in trade restrictions would have significant negative impacts on living standards.”The organisation sketched out a “downside scenario” under which the US further boosts tariffs on all countries by 10 percentage points and equivalent retaliatory actions are imposed on the US. The level of global GDP would be 0.3 per cent lower by the second and third years of the shock, the OECD said, with global inflation rising 0.4 percentage points a year. US consumers would be hit hard, equivalent to a reduction of more than $1,600 in real net disposable incomes per household. Interest rates would have to be increased by as much as a percentage point relative to the OECD’s central forecasts over the first three years, while the US effective exchange rate would rise by 1.7 per cent. The OECD said it saw “significant risks” ahead. “Further fragmentation of the global economy is a key concern,” it added. “Higher and broader increases in trade barriers would hit growth around the world and add to inflation.”Data visualisation by Keith Fray More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldUncertainty about President Donald Trump’s tariffs is complicating the “data-dependent” US Federal Reserve’s efforts to send a clear message about the direction of the economy, economists say.As the Fed prepares to deliver its latest interest rate decision on Wednesday, figures last week showed inflation slowed more than expected in February, bolstering the case to resume cuts later this year amid signs of slowing growth. However, policymakers are also weighing fears that promised trade tariffs could stoke inflation or trigger an economic slowdown — or both.“The promise of future tariffs essentially pushes aside [the Fed’s] goal of data dependency and means they’re going to have to rely more on a forecast framework,” said Joe Brusuelas, chief economist at tax and consulting firm RSM US.Although the US central bank is widely expected to keep interest rates on hold this week, investors will be scrutinising officials’ economic forecasts, which show how they are thinking about interest rate levels for the coming years, as well as chair Jay Powell’s post-meeting statement. The Fed has in recent years insisted that it is “data-dependent” and focuses more on the latest inflation and growth figures rather than modelling the future. This stance became increasingly prominent as the central bank sought to maintain its credibility after failing to forecast surging inflation in 2021 and 2022.Policymakers say a dependence on data helps them to stay flexible. Some economists, however, fear that reliance on backward-looking data will put the central bank on the back foot in an environment of increased political and economic uncertainty, especially as expected tariff-induced price pressures could take some time to filter through to the data.February’s surprisingly cool inflation figures, in particular, will make Fed chair Jay Powell’s messaging “more awkward” because it will “be harder to point exclusively to the data” to justify holding interest rates steady, and even potentially raising future forecasts on Wednesday, said Vincent Reinhart, chief economist at BNY Investments.He added that the latest inflation report was “a rear-view mirror reading” that was too early to capture the impact of Trump’s proposed trade levies. A 10 per cent tariff on Chinese imports only went into effect partway through the month and may not yet have trickled through to consumer prices, while levies on Mexico and Canada were pushed back to April 2.Brusuelas said the Fed was facing “a difficult policy position” because raising tariffs on some of the country’s biggest trading partners could simultaneously increase price pressures and weaken the US jobs market, each of which would support opposing interest rate decisions.Trump’s shifting economic policies may also affect how policymakers weigh different economic indicators, according to Thomas Ryan, North America economist at Capital Economics. He expects to see less focus on the price level — a “backward-looking” metric of inflation — and more emphasis on consumers’ inflation expectations, which have begun to tick up since the start of the year.On Wednesday, Fed officials will also be weighing a disappointing employment report, which showed that the economy created 151,000 new jobs in February, fewer than expected, adding to fears of slowing growth. In a speech last Friday, Powell played down these concerns, insisting that the economy remained “in good shape” despite “elevated levels of uncertainty”. But that uncertainty — the result of multiple U-turns on economic and trade policy — means that the Fed will be left “on the back foot” and “unable to plan or take a strong position”, according to James Knightley, chief international economist at ING. The administration’s dizzying policy changes have already sparked an equity market sell-off and concern from businesses. Major US airlines American, Delta, and Southwest this week warned of a slowdown in demand spurred by consumer uncertainty about the US economic outlook. Wall Street’s benchmark S&P 500 stock index, meanwhile, fell into correction territory last week before inching back.“We know for sure that everybody — businesses, households, and monetary policymakers — hates uncertainty,” said David Wilcox, a former Federal Reserve member of staff who now works at the Peterson Institute for International Economics and Bloomberg Economics.Beyond an “oblique reference” to the challenges of uncertainty, however, Wilcox said that Fed officials would try to avoid making any specific reference to Trump’s economic agenda. “Overwhelmingly, I suspect one of Powell’s key objectives will be to keep his head down and not be perceived as providing any running commentary on administration policy,” he said. More