Trump tariffs latest: UK economy to suffer even if new US trade deal struck, grim new forecast warns

The head of the UK’s budget watchdog has said that uncertainty over US tariffs were among the things that contributed to a hit in business and consumer confidence in Britain.

Richard Hughes, chair of the Office for Budget Responsibility, was asked by the cross-party Treasury committee whether business and consumer confidence took a bigger hit after October’s budget than they had predicted in their forecast.

He said that confidence “didn’t behave the way we expected it” to in the second half of 2024, and said it “fell over”.

“There were a mix of factors that contributed to it, some of which were global including just the uncertainty about what the new Trump administration was going to do to things like tariffs,” said Mr Hughes. “You’ve seen falls in business confidence around advanced economies not just in the UK.”

Other factors included increases in energy prices, which have had an impact on inflation, he said.

A member of the OBR’s Budget Responsibility Committee said US tariffs at 20 or 25 per cent maintained on the UK for five years would “knock out all the headroom the government currently has”.

Giving evidence to the Treasury Committee on the spring statement, David Miles said: “If tariffs at 20, 25 per cent were put on the UK and maintained for five years, our assessment of what that does is that it will knock out all the headroom that the government currently has.

“Had we made that a central forecast, and had the government not changed policy at all knowing that we were going to take that as our central forecast, then the headroom would have pretty much all gone.

“Of course that would have been in some ways, a very extreme assumption. Because not only would that be as bad as people might expect in the very near term, but it would have been maintained for five years, which is beyond the next presidential election in the US.”

Mr Miles said a “very limited tariff war” that the UK stays out of could be “mildly positive” for the country.

He added: “There’s a bit of trade that will get diverted to the UK, and some of the exports from China, for example, that would have gone to the US, they’ll be looking for a home for them in the rest of the world.

“And stuff would be available in the UK a bit cheaper than otherwise would have been. So there is one, not central scenario at all, which is very, very mildly potentially positive to the UK. All the other ones which involve the UK facing tariffs are negative, and they’re negative to very different extents.”

Our political correspondent Archie Mitchell writes:

Kemi Badenoch has gathered journalists in the ground floor of Tory HQ in a room that feels more like a classroom than a venue for a major political party’s conference.

The Independent has been shunted into a faraway corner because the room is not big enough to seat the relatively modest audience that has shown up to hear from the Conservative leader while giving everyone a decent view.

The party’s lack of funds has long been a talking point in Tory circles, with swathes of head office staff being made redundant to shore up the party’s finances.

And today’s presser is a sign of how badly the party is struggling. Not only could they not rent out a suitable venue to host journalists, they could not get a usually friendly think tank or donor to put them up in a more appropriate spot.

It seems Britain is not alone in being caught off guard over Donald Trump’s upcoming tariffs, after their hopes of reaching an economic agreement with the US to avert import taxes on UK goods were reportedly dashed over the weekend.

Speaking to reporters at the White House on Monday, the US president declared that he had “settled” on his so-called “Liberation Day” plans, adding: “Relatively speaking, we’re going to be very kind.”

That is claimed to have come as news to White House aides, however, who were under the impression that Mr Trump had not yet committed to a set strategy and that conversations remained fluid, sources told the Wall Street Journal.

It’s worth a note over a few big fallers in the UK over the past couple of days – as they’re not all due to potential incoming tariffs.

Pets at Home fell more than 12 per cent yesterday after a profit warning, before rebounding somewhat in the afternoon.

Builder merchant Travis Perkins is down more than seven per cent today after reporting falling revenue and a £77m pre-tax loss. They are also looking for a new CEO, after the health-related departure of Pete Redfern.

And John Wood Group shares fell by almost a third yesterday after reporting issues with their accounts – they expect their shares to be suspended from trading in due course due to a delayed filing.

The US State Department has made a rare intervention in British politics, warning of its “concerns about freedom of expression in the United Kingdom”.

It said she faces criminal charges for offering conversation with patients seeking abortions within a legally prohibited “buffer zone” outside a clinic. “We are monitoring her case. It is important that the UK respect and protect freedom of expression,” the State Department’s dedicated democracy, human rights and labour (DRL) account posted.

It added: “US-UK relations share a mutual respect for human rights and fundamental freedoms. However, as Vice President Vance has said, we are concerned about freedom of expression in the United Kingdom.”

Our political correspondent Archie Mitchell reports:

Sir Keir Starmer has said that talks with the US on a trade deal which would help Britain avoid being hit by Donald Trump’s import tariffs are “well advanced”.

“We are discussing economic deals,” Sir Keir told Sky News. “These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions.”

Looking ahead to the US market opening in a few hours, while most of the major names sunk yesterday in early trading, there was a significant rebound later in the day.

The S&P 500 closed about 0.5 per cent higher in the end, and several tech names are seeing share price rises in pre-trading.

There’s still time to change here, but Tesla is poised to open 3.5 per cent up, Nvidia 1.1 per cent up, Alphabet 0.7 per cent up, Microsoft and Amazon are flat.

Opportunistic buying at lower prices, or is optimism over a lower tariff impact slowly coming back?

“Sensitive areas” such as food standards will be a “red line” in UK economic talks with the US, but axing plans for a digital services tax on US tech firms could be on the table, the business secretary has suggested.

Speaking to Times Radio, after the newspaper reported that UK minsters have already conceded that they will drop plans for a digital services tax in their talks with US counterparts, Jonathan Reynolds said: “There are sensitive areas you can’t go to.

“Other countries understand that the regime that we put in place in the UK, what we call our SPS [Sanitary and Phytosanitary] regime, which is our food standards regime, that’s a red line for us. That’s a really important area that we wouldn’t be able to negotiate on and the US understands that position as do other countries.”

While a “digital services tax” – whereby global tech firms “pay a rate of tax in the UK that is commensurate to their economic activity” in Britain – is “an important principle”, Mr Reyndods said, he added: “But how we achieve that – we’ve always wanted to reach that on an international basis.

“Digital services tax in itself was a temporary imposition in lieu of a wider international agreement. So how we deliver upon that is something we can talk to any country in the world.”

The Times reported on Monday night that UK ministers were particularly frustrated to learn that Britain would be hit by US tariffs this week because they believed an economic deal – including concessions on a digital services tax and agriculture, but none on food hygiene standards – was ready to go.

It’s not just the FTSE which was down yesterday; the S&P 500 is down more than 5 per cent in the last month and the Nasdaq sits on -8.2 per cent across the same time frame.

All that selling doesn’t mean money just sits in bank accounts though; traders and investors typically want to trade or invest, not maintain full liquid – or cash – positions.

So, they look for alternative assets. Crude oil is up about 2.5 per cent for the past month, but the real winner has been gold. The price of gold futures – which tracks the price of perceived safe-haven bullion – has risen to above $3,150, with new all-time highs being set every day at the moment.

Gold is up more than 21 per cent since the start of 2025. Analysts foresee a continuation along that path to around $3,300 by the end of the year.