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The UK economy will be dented by slowing global trade and higher costs as a result of rising tariffs even if it escapes being hit directly by new US levies, chancellor Rachel Reeves has said.
“I don’t want to see tariffs increased,” Reeves said at an event hosted by Make UK, a lobby group. “Even if tariffs are not applied to the UK, we will be affected by slowing global trade, by a slower GDP growth and by higher inflation than would otherwise be the case.”
The chancellor said she sees good reasons to be hopeful about the prospect of a trade deal between the UK and the US, even as she struck a downbeat note about the wider implications of Trump’s decisions to boost tariffs on Canada, Mexico and China.
Her concerns come as the trade war widened, with President Donald Trump ploughing ahead with higher tariffs on some of America’s biggest trade partners.
Trump on Monday announced he would press ahead with tariffs of 25 per cent on all imports from Canada and Mexico. Trump also signed an executive order to raise his level of additional tariffs on Chinese imports from 10 per cent to 20 per cent.
Reeves was speaking on the same day the Treasury was due to receive the latest round of forecasts from the Office for Budget Responsibility — the UK’s official fiscal forecaster — ahead of a Spring Statement later this month.
Economists expect the outlook to show weaker growth and potentially higher inflation than in the October budget, endangering the chancellor’s margin of error against her key fiscal rules. The Treasury has been planning to cut public spending in a bid to restore the “headroom” against its self-imposed fiscal restraints.
The Bank of England has already warned that the UK will not be immune from mounting trade hostilities. In its February economic outlook, the BoE said that the impact on global growth is “likely to be negative” if Trump goes ahead with higher levies, while there remains “significant uncertainty” over the implications for inflation.
Speaking on Tuesday, Reeves said she would continue to make a case for free and open trade, saying that higher tariffs do not serve anyone well. She spoke as the Standard & Poor’s 500 index gave up all its gains since Trump won a second term, as investors took fright at mounting risks to global growth.
Trump said last week during a visit to Washington by Prime Minister Sir Keir Starmer that the two sides were in talks over a bilateral trade pact. Reeves said on Tuesday that she was not “naive” about the hurdles ahead.
“This is not going to be an easy thing to secure for reasons that we all understand,” she said. “There will have to be give and take on both sides. We absolutely recognise that, but I do think there’s a big opportunity here.”
Reeves reiterated the importance of the US-UK partnership in the wake of Trump’s decision to suspend military aid to Ukraine. The US and UK were “closely intertwined” when it came to security, she said. “They are our closest partners when it comes to defence and security and that will continue to be the case.”
