Trump's Tariffs Set To Cost UK Economy £22bn, Economists Warn

Donald Trump’s trade tariffs are expected to deal a significant blow to the UK economy, with economists forecasting a £22bn loss by 2027. A new analysis by KPMG suggests that the US president’s trade war will reduce Britain’s economic output by 0.8% over the next two years, posing a major challenge to Chancellor Rachel Reeves’s efforts to boost growth.

Despite imposing lower tariffs on the UK compared to other countries—such as 10% on British goods, while the EU and China face levies of 20% and 54%, respectively—Trump’s policies are still expected to have a profound impact on the UK economy. KPMG’s forecast predicts that this will leave the country £21.6bn worse off by 2027, adding further strain to the public finances and increasing the likelihood of tax hikes and spending cuts.

Yael Selfin, KPMG’s Chief UK Economist, warned that the repercussions of the global trade war would be felt in the UK, particularly as other nations retaliate with tariffs of their own. “The trade war will have huge implications for the Chancellor,” Selfin said. “While trade disruption is concerning, uncertainty remains the biggest concern.”

KPMG also revised its UK growth forecast for the current year, slashing it from 1.7% to just 0.8%. This adjustment reflects not only the impact of Trump’s tariffs but also inflationary pressures and anticipated wage growth.

The firm highlighted that the outlook for public finances remains fragile, with limited fiscal flexibility. Any minor economic downturn could lead to further cuts in spending or adjustments to revenue, potentially contributing to policy instability.

As the United States is the UK’s largest export partner, the tariffs have raised alarm among UK businesses. A recent survey of 600 firms conducted by the British Chamber of Commerce (BCC) found that 62% of UK businesses trading with the US expect to be negatively impacted by the tariffs. A third of businesses are already planning to increase prices in response, and just 21% believe Labour leader Sir Keir Starmer should retaliate.

Lobby groups have urged the UK government to intensify efforts to secure a trade deal with the US. Shevaun Haviland, Director General of the BCC, expressed strong support for the government’s ongoing negotiations, emphasizing that a deal is still achievable, given the US’s openness to discussions.

KPMG also warned that the UK’s economic troubles are compounded by a slowdown in the Eurozone, which will likely have ripple effects on the UK economy. Additionally, Trump’s trade measures may push other countries to seek alternative markets for their goods, potentially flooding the UK with cheap imports. While this could benefit consumers, it would significantly challenge domestic manufacturers due to increased competition.

To mitigate the impact on the economy, KPMG’s Selfin suggested that the Bank of England may consider lowering interest rates. She predicts the Bank could reduce the base rate from 4.5% to 3.75% by the end of the year, and further to 3.25% by 2026, although officials have so far hesitated due to concerns over inflation.

Selfin also noted that fears of a global recession could shift economic dynamics, potentially leading to slower wage growth as workers become more focused on job security than negotiating higher pay. JP Morgan has raised the risk of a global recession to 60% from 40%, predicting a downturn in the US economy as well.

Despite these concerns, the White House has attempted to downplay the risk of recession. US Treasury Secretary Scott Bessent dismissed fears of a downturn, citing short-term market fluctuations and downplaying the recent $6 trillion stock market loss.

Meanwhile, the latest economic pressures come amid already low business confidence in the UK, exacerbated by the Chancellor’s recent tax-raising Budget. A BDO survey found that economic uncertainty is keeping hiring intentions near a 12-year low.

The combination of trade disruptions, growing fiscal pressure, and weakening business sentiment leaves the UK’s economic future uncertain, with many businesses and economists closely monitoring the outcome of ongoing trade negotiations and domestic policy responses.