United States President Donald Trump emerged on Wednesday as one of the biggest threats looming over the British economy, according to the country’s fiscal watchdog, which warned that slow growth and a substantial debt burden rendered it particularly vulnerable to his proposed tariffs.
British Finance Minister Rachel Reeves implemented a politically unpopular reduction in the welfare budget and other spending cuts, all to maintain the economy’s trajectory towards a key fiscal target designed to reassure investors following former Prime Minister Liz Truss’s short-lived market turmoil in 2022.
However, the country’s independent fiscal watchdog cautioned that a global trade war could diminish economic output, while an increase in Bank of England interest rates and gilt yield expectations could eliminate her narrow margin against that fiscal target.
“If you are going to have ‘iron-clad’ fiscal rules, then leaving yourself next to no headroom against them leaves you at the mercy of events,” said Paul Johnson, director of the Institute for Fiscal Studies think tank.
Trump has announced that new reciprocal tariff rates will take effect on 2 April to penalise countries his administration deems to be obstructing US exports.
According to Britain’s Office for Budget Responsibility watchdog, higher US import tariffs would dampen UK economic activity beyond any direct impact on the country’s exports.
The Office for Budget Responsibility stated that US tariffs on its trade partners in general could reduce the size of Britain’s economy, which is highly exposed to fluctuations in international trade, by as much as 1 per cent.
Reeves and Prime Minister Keir Starmer have already been derailed since their election last July, having pledged a period of national renewal.
Rising debt costs and stagnant economic growth have compelled them to make unpalatable cuts, and Reeves has faced significant pressure from businesses after she used her first budget in October to increase taxes on employers.
Nevertheless, she has adhered to her plan, asserting that she needed to rebuild public finances, and reduced payments to the elderly for heating costs before outlining welfare cuts on Wednesday, which are expected to affect 3.2 million families.
