Volatility is back' Markets weigh up risks of recession and higher consumer prices

The trade war triggered by Donald Trump's tariffs is already causing headaches for global stock market investors, brands, importers and exporters.

- Phillip Inman Kalyeena Makortoff

Here, we examine the potential consequences of the tariffs, from the derailing of deals and the further undermining of London's stock exchange to risking a rise in corruption and pushing up prices for consumers.

The major economic forecasters have yet to give their verdict but the International Monetary Fund has already said the tariff war will damage trade and business investment in most countries.

China could fail to meet its 5% growth target for 2025, while Germany could be pushed into recession. The UK is likely to escape relatively unscathed in terms of trade. UK goods exports to the US are significant but businesses are expected to minimise the impact of tariffs, leading to a modest 0.1 percentage point reduction in GDP this year.

However, with borrowing costs still high and consumer confidence at risk, the tariffs present a significant headache for Keir Starmer, the prime minister.

Central banks have spent much of the past three years trying to cut inflation, which reached as high as 11% in the wake of Russia's full-scale invasion of Ukraine in 2022.

Trump's tariffs threaten to send costs for consumers surging. It is why the EU and the UK have proved reluctant to respond in kind to Washington's barrage of tariffs.

Some estimates say US inflation - currently at 2.8% - could peak at 4.5% next year if tariffs remain in place and that the chances of a US recession have increased.

To tackle this, central banks are expected to cut rates soon to protect their economies. The US Federal Reserve has not signalled that interest rate cuts are on the way. However, it may be forced to act if growth slows as anticipated.

The City has been waiting patiently for a market rebound that would help unleash plans for flotations by some of the UK's biggest fintech firms, including the "neobanks" Revolut, Monzo and Starling.