Trump’s tariffs could crush UK growth to zero
US President Donald Trump’s tariffs could knock UK growth down to zero next year, according to the National Institute of Economic and Social Research (NIESR).
The prospect of low or zero growth would deal a catastrophic blow to Chancellor Rachel Reeves’ plans for further investment in public services as estimates by NIESR suggest that a trade deal with the US would be a matter of necessity for the UK economy.
Researchers at the think tank said that a universal 10 per cent tariff in addition to 60 per cent taxes on Chinese imports – seen as a worst case scenario – would cause serious harm to UK GDP.
“Even if the UK were exempt from these tariffs, economic activity could still suffer due to broader global disruptions,” researchers said.
It also estimated that global output would be lowered by around 2 per cent over five years.
Its forecasts said that UK growth for 2025 would hit 0.6 per cent with high tariffs.
Economist Ahmet Kaya said historic precedents showed that a global trade war would be “devastating” for businesses and households.
“In today’s highly integrated global economy, such a race to the bottom could disrupt supply chains and send shockwaves across the world, affecting businesses and households far beyond the directly impacted countries,” Kaya said.
NIESR’s growth estimate is lower than that of many other forecasters.
Trump is poised to announce sweeping tariffs on UK goods on Wednesday evening but there is little clarity on how far he will go.
In a report by the consultancy Capital Economics ahead of the president’s speech, chief UK economist Paul Dales said the economic growth would come in at 0.8 per cent in 2025.
“These figures shouldn’t be considered facts. Instead, they just illustrate the broad magnitude of effects and the relative differences based on different blanket tariffs and price sensitivities,” he said.
The Office for Budget Responsibility (OBR)’s forecast estimated growth to come in at one per cent for the year but it did not consider the effects of Trump’s tariffs.
Dales suggested there was a “decent chance” that the UK and US agree a trade deal which eliminates or waters down any tariffs Trump announces tonight.