Rachel Reeves and Donald Trump (Image: Getty)
Donald Trump’s tariffs blitz could mean the UK’s economic growth is up to 0.5 percentage points lower than expected in the coming years, an expert has warned. In his “Liberation Day” announcement, the US president slapped a 10% tariff on American imports of UK goods as he hit out at “exorbitant” VAT rates.
It came as he announced heavier tariff plans on a raft of other countries, including a 20% levy on imports from EU nations. UK car manufacturers will be hit by a 25% tariff on all foreign cars imported to the US, which experts have said could put 25,000 UK jobs at risk. Experts stressed the UK has avoided a “direct blow” but will still face a “significant” impact.
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Thomas Pugh, economist at RSM UK, said: “The direct impact on the UK is likely to be in the 0.2% to 0.5% of GDP range over the next few years, combining both the impact of the 10% flat tariff and the 25% tariff on automotives.
“The impact will be bigger once the hit to the US and European economies becomes clearer and is taken into account.
“Given we expect growth of 1% this year and 1.5% next year, it implies another year of stagnation at best.”
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He added that he believes the impact of the tariffs will be “not far off” wiping out Chancellor Rachel Reeves’s fiscal headroom in the next Budget in the autumn.
Pantheon Macroeconomics’ Rob Wood suggested the economic impact would be less heavy but indicated it could result in more cuts to interest rates.
Economists have said the UK currently exports about ￡60billion in goods to the US, including pharmaceuticals, cars and technology equipment.
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Experts have indicated the impact of the tariff plans will not be as bad as many had feared.
The UK’s official economic forecaster, the Office for Budget Responsibility, warned last month that a more severe scenario in which the UK and other nations also retaliated to the imposition of tariffs would have dragged UK GDP 0.6 percentage points below forecasts this year.
It had said this would have had a one percentage point impact next year and “almost entirely eliminate” the Chancellor’s ￡9.9billion headroom against her fiscal rules.
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Rain Newton-Smith, chief executive of the Confederation of British Industry, said: “A cool and calm reaction from the UK Government is the right response: UK firms need a measured and proportionate approach which avoids further escalation.
“Retaliation will only add to supply chain disruption, slow down investment, and stoke volatility in prices.”