Rachel Reeves has admitted Donald Trump’s looming trade war poses a huge threat to Britain’s economy after being warned that tariffs risk wiping out her £9.9billion fiscal buffer.
The Office for Budget Responsibility said that a US global tariff of 20 per cent on all goods would cut one per cent of the UK economy and land a hammer blow to Labour's growth plan.
Inflation would also increase by about 0.3 per cent above the OBR's forecasts, putting the figure well-above the Bank of England's two per cent target by 2028.
An alternative scenario, which sees the UK elect not to impose retaliatory levies, would result in a 0.4 per cent reduction in GDP this year.
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The OBR said: "Higher US tariffs would increase the cost of imported goods to US consumers relative to US-produced goods.
"This is likely to decrease demand for UK exports and dampen UK economic activity."
Responding to concerns about Trump’s trade agenda, Reeves suggested the UK must pursue closer trade relations with both the United States and European Union.
Speaking from Downing Street, the Chancellor said: “The OBR has set out today in its documents some different scenarios for what tariffs might mean for the UK economy.
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Getty Images“I think all of us were very pleased when our Prime Minister went to Washington just a few weeks ago to have those initial meetings with the US President.
“The last time Donald Trump was President of the United States, trade and investment flows increased between our countries.”
She added: “Tariffs between our economies, increased tariffs between our economies will damage both our economies, and we’ll continue make that case for free and open trade. Let’s see where we get to in the next few weeks.
“But I recognise how important free and open trade is not just with the United States, although they are our biggest trading partner, but also with the EU and that’s why I’m pleased the summit between the UK and the EU has been organised for May this year because we also want better trade flows between us and our nearest neighbours in Europe, particularly to help small businesses that have been tied up in red tape since the botched Brexit deal the previous Government did.”
Chancellor Rachel Reeves announced her Spring statement in the House of Commons today
PAA UK-US trade deal has long been regarded as a major Brexit benefit.
However, Trump failed to secure an accord with Britain during his first term in the White House amid a long-running trade dispute between the planemakers Boeing and Airbus.
Joe Biden’s administration poured damp water on any far-reaching transatlantic trade relationship.
The UK imported £112.1billion of goods and services from the United States in 2023, making it Britain’s largest import partner at 12.9 per cent.
A staggering £179.4billion was also exported from the UK in goods and services in 2023, putting its haul at 21.2 per cent.
