FTSE 100 rally: Cheaper mortgages may be ‘silver lining’ from Trump’s tariffs

Cheaper mortgages may be a “silver lining” from Trump’s trade tariffs, analysts have said, as the UK stock market staged something of a relief rally following three days of turmoil.

The prediction came as the markets priced in at least three interest rate cuts from the Bank of England this year amid fears of a sharp economic slowdown or even a full-blown global recession as trade tensions mount.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Trump’s tariff announcement might have created havoc in the stock market, but there could be a silver lining for UK mortgage borrowers. Interest rate expectations are falling as markets price in the potential economic damage from US tariffs, and the likelihood the Bank of England will respond with interest rate cuts.

If lower interest rates lead to cheaper mortgages it could stimulate the housing market.

“The market had been pricing in two interest rate cuts this year, but in short order that has now been ratcheted up to three, which would take the base rate to 3.75 per cent by the end of 2025.”

The Bank of England rate-setting committee’s next meeting takes place on May 8. A further five meetings are then due to be held before the end of 2025 - in June, August, September, November and December.

London’s benchmark FTSE 100 share index rose by about 2 per cent in Tuesday morning trading, as a fragile sense of optimism returned to financial markets following several sessions of heavy losses. It followed a more positive session for Asian markets overnight, with some indexes making gains after suffering from steep falls in previous days.

The next stage of US president Donald Trump’s tariff programme was due to come into force in the early hours of Wednesday, with import taxes at 20 per cent for goods from European Union nations and 24 per cent from Japan.

Khalaf added: “The Bank of England will be keenly aware the inflationary outlook isn’t entirely one-sided. Cheaper oil will push down on UK inflation, giving the Bank scope to cut rates without worrying about rising prices.

“Likewise cheaper goods flowing into the UK instead of the US could help dampen inflation. However on the flip side of the coin, exchange rate movements could create inflationary headwinds.”

Richard Hunter, head of markets at Aberdeen-owned investment platform Interactive Investor, said: “It is far too early to say whether the reduced market falls represent an inflection point, or whether they are simply a classic ‘dead cat bounce’.

“The volatility within the US trading session in particular suggests that either is possible, especially since further tariff announcements will follow which could move sentiment in either direction.

“To some extent, global indices are at the mercy of the president, and the growing backlash which the US is beginning to experience in terms of retaliatory tariffs and increasingly aggressive rhetoric are not even near the end of the beginning,” he added.

The UK has not retaliated so far, but has drawn up a 417-page list of possible products which could face tariffs if Prime Minister Sir Keir Starmer decides to put import taxes on US goods.

Tariffs batter FTSE 100 but what does turmoil mean for interest rates and inflation?