The tariff announcement on 2 April not only led to sharp declines in the stock market, but also has important ramifications for the global economy. 

We understand this is an unsettling time for investors, so this article aims to provide clarity around the impact of tariffs, while putting the recent share price falls into context. We also offer some investment ‘dos and don’ts’ to consider when markets get choppy.

What does it mean for the economy?

The tariff announcement has added a lot of uncertainty to the global economy and has led us to downgrade our growth forecasts.

Under our revised forecasts, US economic growth in 2025 would be below 1%. This would put the economy at a potential ‘stall speed’ that increases the risk of a recession¹. Additionally, we expect core inflation² to reach nearly 4% by the end of 2025. We think the US unemployment rate will rise to about 5% by year-end, which would be the highest in a decade outside the Covid-19 era.

Outside the US, we anticipate weakening economic growth, although the impact of tariffs on inflation is not expected to be as great as in the US. For the UK, we have downgraded our growth forecasts to around 0.5% in 2025 and just below 1% in 2026. We now expect UK inflation to end the year around 2.5%, slightly above our previous forecast, but we have reduced our 2026 inflation forecast to around 2.0%.  

We have also downgraded our forecast for 2025 euro area economic growth to less than 1% and our 2026 forecast to around 1.0%.

For China, we have revised our 2025 growth forecast from 4.5% to closer to 4%, due to the direct hit to exports from higher tariffs and weaker global growth. However, the extent of the slowdown is expected to be cushioned by a likely cut to interest rates. 

What does it mean for markets?

Markets around the world have experienced significant declines in response to the tariff announcements. This has led to alarming headlines and an understandable sense of unease among investors. 

While any market decline is worrying, the most recent falls are to be expected. The tariff announcements were one of the biggest trade shocks of the last 100 years. Markets do not like uncertainty, and there are still questions about the length and outcome of trade negotiations. Additionally, we have been warning for some time that US share price valuations (how much investors are willing to pay for shares based on company earnings) have been stretched, particularly the largest technology shares. This meant they were more vulnerable to price falls.

It’s also important to put the stock market declines into context. Even with the recent falls, most major markets have shown gains since 1 January 2024. For example, although the S&P 500 Index, which tracks the 500 largest US companies, has fallen 15.8% so far this year, it has returned 8.1% since 1 January 2024. Similarly, the FTSE All-World Index has dropped by 12.3% since 1 January 2025 but has returned 5.9% since 1 January 2024³.

Global bonds⁴ have fared better, with the Global Aggregate Bond Index up 2.5% so far this year and up 5% since January 2024⁵. This underscores the importance of holding a portfolio with the right mix of shares and bonds for you.

What does it mean for me?

When markets are unsettled, it’s important to take a step back, focus on the long term and avoid making knee-jerk reactions. Here are some key points to consider:

Dos and don’ts for market turbulence – things to consider

• Don’t panic sell when shares fall: Emotions are not a reliable guide for making investment decisions. Selling when markets fall could mean you miss out on subsequent gains.

• Stick to your long-term plan: A well-thought-out investment plan is designed to weather the market’s ups and downs.

• Consider rebalancing your portfolio: If you manage your investments yourself, rebalancing your portfolio involves buying and selling funds so that the mix of shares and bonds remains in line with your goals and attitude to risk. If you invest through our managed individual savings account (ISA) or managed pension, we handle the rebalancing for you. 

• Adjust your plan if necessary: If your goals seem out of reach, consider saving more or extending your target date. However, it’s important to avoid the temptation to catch up by taking on additional investment risk, as this may expose you to further potential losses.

¹ A recession is a period of time in which the economy is contracting.

² Inflation is the rate of increase in prices for goods and services. ‘Core’ inflation excludes volatile food and energy prices.

³ S&P 500 returns are based on the S&P 500 UCITS ETF (Accumulation) and FTSE All-World returns are based on the FTSE All-World UCITS ETF (Accumulation). Returns are as at 4 April 2025 and are from 1 January 2024 and 1 January 2025 in GBP terms. An ETF (exchange-traded fund) invests in hundreds, sometimes thousands, of individual investments, such as shares or bonds. It trades on an exchange throughout the day like a stock and will typically track a specific market. Accumulation means the ETF reinvests any income by buying more shares rather than paying some income out.

⁴ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

⁵ Global Aggregate Bond Index returns are based on the Global Aggregate Bond UCITS ETF - Hedged Accumulation. Returns are as at 4 April 2025 and are from 1 January 2024 and 1 January 2025 in GBP terms. With hedging, managers typically use derivatives (a type of financial contract) to offset exchange rate movements. The contracts typically lock in a pre-determined exchange rate at which the manager can buy or sell the foreign currency at a future date.

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