UK economy set for significant tariff hit but avoids ‘direct blow’ – economists

The UK economy has avoided “a direct blow” from US President Donald Trump’s tariff regime but will still face a “significant” impact, according to economists.

In his “liberation day” announcement, the US president slapped a 10% tariff on US 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% tariff on imports from EU nations.

Nevertheless, 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.

Economists have said the UK currently exports around £60 billion in goods to the US, including pharmaceuticals, cars and technology equipment.

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 £9.9 billion headroom against her fiscal rules.

Economists said UK firms still face significant uncertainty despite avoiding the 20% tariff scenario that some had feared.

Barret Kupelian, chief economist at PwC, said: “The UK avoided a direct blow — but the global economy has taken a substantial hit.

“For the UK, the impact is significant — though less severe than for some other countries.

“In the short term, businesses face a sharp rise in uncertainty.”

UK business leaders have called for the UK Government to avoid further escalation in order to limit the economic impact of the policy announcement.

Rain Newton-Smith, chief executive of the CBI (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.”