“It’s hard to judge the exact impact tariffs will have on the economy and markets, but given how robust they were ahead of the announcements, they stand in good shape to absorb some of the fluctuations.” said Lilian Chovin, Head of Asset Allocation at Coutts.

Speaking at our Premier In Conversation event on Wednesday, Lilian Chovin and Monique Wong, Head of Multi Asset Portfolio Management, assessed what we have learnt so far from the so-called “Liberation Day” which saw the US introduce sweeping tariffs on countries around the world.

For the US economy, the largest in the world, the recent news means GDP forecasts have been lowered, but still remain positive. As detailed in the chart below, GDP is still expected to grow by 1.2% in 2025, according to NatWest Markets, down from 2%.

The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs.

“Tariffs will have a negative impact on growth, but the US economy comes from a position of strength and the impact should be contained,” said Lilian. “We are constantly monitoring the situation to determine the resilience of the US economy overall.

“Ahead of Liberation Day, unemployment levels were low and real wage growth was rising which suggests a healthy economy.”

As well as ‘backwards looking’ data, the team also analyse surveys which indicate how much people and businesses are likely to spend in the coming months. Currently that data suggests signs of resilience over the long term. 

Two key areas of focus for central banks are price stability and employment. The ideal scenario is to encourage growth while keeping prices stable. How the US Federal Reserve (the Fed) responds to the impact of tariffs will depend on what they decide to prioritise.

“The Fed will likely have to wait for more evidence and data to come out before deciding on making any changes to interest rates,” said Lilian.

“Should growth disappoint, interest rates might need to come down sooner to support the economy and consumer confidence. The Fed can afford to wait and see how tariffs will impact growth and inflation, and we believe it has a lot of room to react if necessary,” attested Lilian.

Inflation in Europe is cooling even quicker, although it is proving slightly stickier in the UK. Any severe pressures on growth would likely lead to rate cuts around the world – and that could be positive for stock markets as it would encourage spending and lower borrowing costs. 

“While the economic impact in the short term is unclear, our long-term views remain the same,” Monique told attendees.

“Over a five-year time horizon, expected returns for equities remain attractive. While they are not at levels that would encourage us to invest more of our allocation, we don’t want to sell any of our holdings as doing so could mean missing out on any of this potential.”

The current set of market events has seen a cheapening in various assets and could provide buying opportunities that add long-term value to our investments.

Diversification remains central to the team’s investment approach. By investing across various types of assets, regions and sectors, diversification could help absorb any further short-term volatility. It could also help capture any positive performance if one area recovers sooner than others.

Monique said: “We include US active funds within our allocation. This has provided diversification away from the technology giants which have underperformed in these market moves.

“Additionally, we have allocations to government bonds, high quality corporate bonds and liquid alternative strategies, all of which have provided ballast in our funds against equity market movements.

“Our funds and portfolios hold US equities hedged into sterling, which has helped as sterling has gone up against the US dollar in recent months.”

It can be extremely challenging to invest in an uncertain environment and to know when exactly to make investment decisions. “It’s important to not shrink time horizons during periods of market volatility as they would potentially reduce long-term expected gains,” says Monique.

Good days and bad days in the market tend to sit next to each other. If you were to pull your investments during the worst days of the year, it’s very difficult to time the best days of the year to reinvest.

Monique added: “Investment decisions are determined by our process. We follow evidence and hard data while looking for opportunities.”