FTSE 100’s Resilience Amid Global Tariff Turmoil: A Closer Look at the Drivers and Risks

The FTSE 100’s 6.11% rise in Q1 2025, despite escalating trade wars and fiscal austerity, underscores its role as a barometer of global economic fragility and resilience. While the index outperformed broader markets, its performance masks a complex interplay of sectoral divergences, policy-driven capital flows, and the shadow of protectionism. Let’s dissect the drivers behind this resilience—and the risks clouding the horizon.

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The Drivers of FTSE 100’s Gains

The index’s growth was propelled by three key factors:
1. Sector-Specific Strength: Energy stocks surged 13.67%, driven by geopolitical tensions and OPEC+ production cuts. Telecoms (+11.66%) and healthcare (+8.51%) also thrived, benefiting from defensive investor sentiment. Financials (+8.10%) capitalized on rising interest rates and solid corporate earnings.

1. Capital Flight from the U.S.: As the Trump administration’s “Liberation Day” tariffs (April 2, 2025) triggered a 7.12% decline in the S&P 500, investors sought refuge in UK equities. The FTSE 100’s relative stability—bolstered by strong UK corporate earnings—made it a magnet for capital fleeing U.S. market volatility.

2. Defensive Earnings Momentum: Companies like BP and Shell, despite oil price declines, reported robust cash flows, while pharmaceutical giants (GSK, AstraZeneca) leveraged pricing power in essential healthcare markets.

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The Tariff Shadow: Headwinds and Sectoral Fallout

While the FTSE 100 surged overall, the trade war’s impact was uneven—and dangerous.
- Tariff-Exposed Sectors Faltered: Basic materials (-7.29%) and IT (-4.01%) suffered as global supply chains frayed. China’s 125% tariffs on U.S. goods and the U.S.’s retaliatory measures disrupted commodity flows, while tech stocks faced dual pressures from trade barriers and AI-driven sell-offs.
- Pharma Under Siege: Trump’s threat of “major” drug tariffs spooked investors, pushing GSK and AstraZeneca lower. This reflects a broader theme: no sector is immune to the politicization of trade.
- Oil’s Divergence: BP and Shell fell sharply as Brent crude plunged to $60.41/barrel—a 30% drop from early 2024 highs. Geopolitical risks and oversupply concerns overshadowed their earnings resilience.

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Fiscal Austerity and Economic Crosscurrents

The UK government’s Spring Statement added another layer of complexity. Chancellor Reeves’ £8.4 billion austerity measures—aimed at curbing debt—raised concerns about domestic growth. While Q1 GDP growth hit 0.5%, economists warn that tax hikes and trade barriers could stall momentum. Meanwhile, the UK’s 10-year gilt yields hit a 25-year high, signaling investor skepticism about traditional “safe havens.”

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Global Context: A Fractured Landscape

The FTSE 100’s gains were part of a broader but uneven global picture:
- Europe’s Mixed Fortunes: Eurozone equities rose 7.43% on defense spending (e.g., Germany’s €500B infrastructure fund) and low inflation (2.2% in March). Yet, tech and consumer discretionary sectors lagged.
- Emerging Markets Diverge: Poland (+27.66%) and the Czech Republic (+24.84%) soared on eurozone ties, while Taiwan (-15.23%) wilted under U.S. tech tariffs.
- Investor Sentiment Shifts: AI anxiety triggered a sell-off in U.S. megacaps (e.g., Meta, Amazon), but UK traders flocked to NVIDIA and Tesla.

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Conclusion: Caution Amid Resilience

The FTSE 100’s Q1 performance reflects its status as a “risk-on” proxy in turbulent times. Energy, telecoms, and healthcare thrived, while tariffs and austerity tested other sectors. Yet, the path ahead remains fraught. With global trade tensions escalating, gilt yields spiking, and UK growth fragile, investors must ask: Can the FTSE sustain this momentum?

The data suggests caution. While the index’s diversification and earnings strength offer buffers, the risks are mounting:
- Trade Wars Escalate: China’s vow to retaliate further, coupled with U.S. threats to expand tariffs, could destabilize markets.
- Fiscal Tightening: Reeves’ austerity may dampen UK growth, undermining corporate profitability.
- Sector Imbalances: Reliance on defensive sectors leaves the index vulnerable to a rotation into riskier assets—if and when stability returns.

In this environment, a selective approach is critical. Investors should favor companies with pricing power (e.g., healthcare), exposure to infrastructure spending, and limited global supply chain dependencies. The FTSE 100’s resilience is real—but so are the headwinds. Navigating this terrain will demand vigilance, diversification, and a keen eye on policy shifts.

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Data sources: Morningstar, ii investment review, UK Office for National Statistics.