US tariffs war could ‘trigger UK recession’
President Trump’s latest tariff package could plunge the UK economy into a recession, top economists have warned, upping the stakes for Keir Starmer as he responds to threats against Greenland.
The US president warned leading European nations, including the UK, he would slap additional 10 per cent tariffs on goods imports if a deal for Greenland’s annexation was not agreed.
Analysts at Capital Economics have warned that the new tariffs could trigger a recession for the UK economy if the impact is felt “all at once”.
The tariff hit could amount to up to 0.75 per cent of UK GDP, equivalent to around £22bn.
“With the UK economy currently growing by 0.2 to 0.3 per cent a quarter, if this hit came all at once it could trigger a recession,” Capital Economics chief UK economist Paul Dales said.
“But it’s likely to be spread over many quarters.”
Recession warning issued by City
Economists suggested that there could be an immediate growth spurt in January as firms rushed to boost exports before the 1 February deadline in the same way manufactures kicked into gear ahead of last April’s tariff deadline.
But it remains unclear whether Trump’s new tariffs would ‘stack’ on top of existing ones or whether they applied to all products and undermine the US-UK trade deal.
Dales added there were questions over whether tariffs were legal pending a US Supreme Court decision on trade, which could be revealed as soon as Tuesday.
The UK’s response to tariffs would also be crucial in calculations around the economic impacts, he said.
“Any attempt by the US to seize Greenland would drive a wedge through transatlantic relations and inflict potentially irreparable damage on NATO.
“In that scenario, it’s hard to imagine the UK not siding with the EU. Arguably, then, the latest tariffs could nudge the UK closer to the EU and further away from the US.”
On Monday, Starmer urged allies to engage in “calm discussion” on trade and diplomatic approaches to Greenland, suggesting risks to the UK were “more direct now than at any time we can remember”.
Market analysts are weighing up the impacts of Trump’s new geopolitical threats, with eToro’s Lale Akoner suggesting that his threats could deepen “policy unpredictability” and contribute to lowered investment levels.
“For investors, this episode is less about Greenland and more about a geopolitical risk premium being repriced across currencies, equities and cross-border capital flows in the days ahead,” Akoner said.