Trump tariffs will cut UK growth as global demand weakens

The imposition of larger-than-expected tariffs on US imports will lead us to cut our UK growth forecast. Our new baseline will likely put GDP growth at just below our current forecast of 1% for this year and close to 1% for 2026, from the previous 1.5%. Although the higher tariffs will hit UK exports to the US, the main impact on UK growth prospects will come via weaker US and global demand and elevated trade policy uncertainty.

The US’s adoption of a minimum tariff suggests any trade deal that the UK manages to agree is unlikely to lower tariffs below 10%. In contrast to many other countries, we don’t think the UK will retaliate with higher tariffs on imports from the US.

We expect the Bank of England’s Monetary Policy Committee to keep gradually cutting Bank Rate, but the more uncertain inflationary environment means the bar to pausing rate cuts is now much lower.

The Office for Budget Responsibility will almost certainly cut its growth forecast and revise up its borrowing projections in response to the tariff increases. This adds to the likelihood that the government will need to overhaul its approach to fiscal policy in this autumn’s Budget.