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As we approach late May, the economic landscape is marked by significant developments. This week, we focus on the United Kingdom, where a landmark post-Brexit agreement has been reached, and the economy shows unexpected growth. We then turn our attention to China, which is implementing measures to stimulate its economy amid ongoing trade tensions.

1. UK and EU Forge Landmark Post-Brexit Agreement

The United Kingdom and European Union have agreed to a significant new deal to reset their relationship five years after Brexit. The agreement covers trade, defence, and mobility, and is being framed as the beginning of a new era of practical cooperation between the UK and its largest trading partner.

Key Components of the Agreement

Trade Facilitation
The deal significantly reduces border checks and paperwork for British food exports to the EU. Since Brexit, many UK exporters have struggled with delays, red tape, and increased costs. This new arrangement is expected to make it easier for UK producers to access European markets more efficiently and competitively, especially in agriculture and retail.

Defense Collaboration
The UK will now access a €150 billion EU defence loan program. This fund supports joint military development, procurement, and strategic investment across Europe. While the UK remains outside the EU, this marks a closer alignment on defence, a key area of shared interest given current global security challenges.

Fishing Rights
The agreement includes a 12-year extension allowing EU fishing vessels continued access to UK waters. This is one of the more contentious aspects of the deal, especially for British fishing communities, who see continued EU access as a compromise of post-Brexit sovereignty. However, negotiators argue it brings long-term certainty and avoids future disputes.

Mobility and Education
The deal also proposes reintroducing youth mobility schemes, including potential UK participation in Erasmus+, the EU’s academic and cultural exchange programme. If implemented, this would restore opportunities for British and European students to study and work across borders, opportunities lost after the UK's withdrawal from the EU.

Economic Implications

Prime Minister Keir Starmer has described the agreement as a “win-win,” forecasting an economic boost of £9 billion by 2040. Business leaders have broadly welcomed the reduced friction at the border, viewing it as a positive signal for long-term investment, trade stability, and improved access to skilled labour through mobility pathways.

Political Reactions

While the agreement is being hailed in many circles as a breakthrough in UK–EU relations, not everyone is pleased. Some political groups have criticised the deal for conceding too much, particularly fishing rights and regulatory cooperation. The government insists the deal maintains the UK's autonomy while re-establishing vital links with Europe.

Final Thought

Since Brexit, this agreement is the most substantial shift in UK–EU relations. While it doesn’t undo the separation, it pivots toward a more constructive partnership. If it holds, it could bring both sides meaningful economic and strategic benefits, though it will remain politically sensitive at home.

2. UK Economy Surprises with Strong Q1 Growth

The UK economy grew by 0.7% in the first quarter of 2025, far outpacing expectations and delivering its strongest performance in over a year. The figures, released by the Office for National Statistics, suggest the country may be on firmer footing than many had feared, despite lingering inflation and high interest rates.

Where Did the Growth Come From?

Much of the growth came from a rebound in two key areas:

• Services sector: This includes industries like finance, education, hospitality, and healthcare, making up around 80% of the UK economy. Strong demand for business services and consumer spending on travel and entertainment helped drive momentum.
  

• Manufacturing exports: British manufacturers saw a boost in orders, particularly from the United States, as global supply chains stabilised and trade frictions eased. This helped offset recent domestic weakness in construction and retail.
  

GDP (Gross Domestic Product) is the broadest measure of economic activity. When GDP rises, the value of goods and services produced in the country increases, a positive sign for jobs, income, and business confidence.

How Does This Compare?

The UK’s 0.7% growth puts it among the fastest-growing economies in the G7 this quarter, outpacing Germany, France, and Japan, all of which reported much slower or even negative growth.

This marks a shift from last year, when the UK lagged behind its peers and faced a technical recession during the winter. While the bounceback is modest, it signals a possible turning point.

What's Behind the Turnaround?

Economists point to several factors:

• Resilient consumer spending, even as household budgets remain tight.
  

• Strong employment levels continue to support demand.
  

• Government support for infrastructure and energy investment is helping to lift capital spending.
  

However, it’s not all smooth sailing. Inflation remains above target, interest rates are still high, and some sectors, especially housing and retail, remain under pressure.

What It Means Going Forward

The stronger-than-expected data may influence the Bank of England’s next move on interest rates. While markets had been expecting a summer rate cut, this kind of upside surprise could prompt a more cautious approach.

Meanwhile, investors and business leaders will monitor the market closely to see if the momentum continues into Q2 or if this was a temporary bounce.

Final Thought

After months of economic gloom, the UK’s Q1 growth offers a rare dose of optimism. While it’s too early to call it a full recovery, the data suggests the economy is more resilient than many gave it credit for, and that could reshape the narrative heading into the year's second half.

3. China Cuts Interest Rates to Rekindle Growth

China’s central bank has taken decisive action to revive its slowing economy, cutting two key interest rates to historic lows to boost domestic demand and stabilise confidence. The move comes amid mounting economic pressure at home and abroad, as trade tensions with the U.S. deepen and key sectors like real estate continue to struggle.

What Was Cut and Why It Matters

The People’s Bank of China (PBoC) lowered the one-year Loan Prime Rate (LPR) by 10 basis points to 3.00%. The five-year LPR, which heavily influences mortgage rates, was also trimmed to 3.50%.

The LPR is the interest rate banks charge their most reliable borrowers. When the central bank cuts this rate, it signals a push to make borrowing cheaper and encourage more spending and investment.

It’s the first such rate cut since October, and comes at a critical moment for the world’s second-largest economy.

Why Now?

China is battling a broad-based economic slowdown, with several overlapping challenges:

• Weak domestic demand: Consumer confidence remains low following years of COVID restrictions and uneven recovery.
  

• Property sector stress: Real estate historically comprised over 25% of China’s GDP and is still contracting. New home sales and construction activity are subdued.
  

• Slowing credit growth: Households and businesses are reluctant to borrow, even with previous stimulus measures.
  

• Escalating trade tensions: New tariffs and geopolitical uncertainty are weighing on Chinese exporters and foreign investment flows.
  

By cutting rates, the PBoC hopes to reduce the cost of borrowing, support business investment, and give consumers more breathing room, especially in the housing market, where mortgage demand has stalled.

Banks Join In

China’s largest state-owned banks also coordinated, cutting deposit rates by 5 to 25 basis points. This helps protect profit margins while aligning lending behaviour with central policy goals. It’s part of a broader trend of “directed easing,” the government nudges banks to lend generously in priority sectors like manufacturing, green energy, and tech.

Market Reaction

Equity markets in Asia responded positively. Investors interpreted the cut as a sign that Beijing will act more forcefully to support growth. However, there’s also an undercurrent of concern: the fact that rate cuts are needed at all signals that China’s post-COVID recovery is stalling more than expected.

What This Means for Global Markets

China’s slowdown has global implications. As the world’s top buyer of raw materials and a key driver of international trade, any weakness in Chinese growth ripples across markets, from commodity prices to supply chains. Lower interest rates could lift demand slightly, but more targeted fiscal support may be needed to move the needle meaningfully.

Final Thought

China’s rate cut signals that growth is faltering and that more support may be on the way. While the move may ease pressure in the short term, it won’t solve structural issues like consumer anxiety or the debt-laden property sector. Beijing is walking a tightrope for now, trying to stimulate without sparking financial instability. Whether this starts a broader easing cycle remains to be seen.

4. Xi Jinping Doubles Down on Economic Self-Reliance

Amid rising global tensions and a faltering domestic recovery, President Xi Jinping has reaffirmed one of China’s core strategic priorities: self-reliance. In a high-profile address this past week, Xi called for a renewed push to build China’s industrial and technological strength from within, a clear signal that Beijing is preparing for a more uncertain global landscape.

What Does ‘Self-Reliance’ Mean in Practice?

In this context, self-reliance doesn’t mean economic isolation - but it does mean reducing dependence on foreign technology, investment, and supply chains in critical sectors.

Xi specifically emphasised:

• Semiconductors: These microchips power everything from smartphones to satellites. China imports most of its advanced chips and faces U.S.-led restrictions on accessing the latest technology.
  

• Artificial Intelligence (AI): Beijing wants to become a world leader in AI, focusing on applications in defence, surveillance, and industrial automation.
  

• Advanced manufacturing: Key areas include aerospace, robotics, clean energy, and electric vehicles, all of which are vital to national security and long-term competitiveness.

The message is clear: China no longer wants to rely on global supply chains for technologies that underpin economic and geopolitical power.

The Return of ‘Made in China 2025’

At the heart of this push is the revival of Made in China 2025, a state-led industrial strategy first launched in 2015. Its goal is to achieve 70% self-sufficiency in key technologies by 2025 and position Chinese firms as global leaders in future industries.

While the plan faded from headlines after international backlash, it’s now at the centre of economic policy, albeit under less public branding and more targeted state investment.

Why Now?

Xi’s renewed focus comes at a moment of economic strain. China’s property sector is still weak, consumer confidence is subdued, and trade relations with the West are deteriorating, especially with the U.S., where tariffs and export controls continue to mount.

With external risks rising, Beijing is increasingly looking inward. Building domestic capacity will create stable, long-term growth and reduce vulnerability to sanctions, trade shocks, or diplomatic rifts.

Global Implications

This inward pivot could reshape global trade dynamics. As China invests heavily in its industries, it may reduce demand for certain imports, especially from Western countries, while increasing competition in sectors like EVs, green tech, and defence-grade computing.

It also accelerates the trend of economic decoupling between the U.S. and China, two superpowers building parallel tech ecosystems, with less interoperability and more strategic rivalry.

Final Thought

Xi’s call for self-reliance isn’t new, but the urgency behind it is. With economic headwinds mounting and global tensions intensifying, China is doubling down on its plan to build strength from within. Whether it succeeds will shape China’s trajectory and the balance of power in the global economy for decades.

Thanks for Reading!

That’s all for this week’s edition of The Weekly Echo. From post-Brexit diplomacy to China’s economic reset, it’s been a week of bold moves and big signals, and we’ll be watching closely to see what unfolds next.

As always, we’d love to hear your thoughts. Do you have questions, feedback, or a story tip you think we should cover? Just hit reply, we read every message.

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Until next time, stay curious.

Best wishes,
Harry & Reika
Co-Founders, Echonomics

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