As the shockwaves from President Trump’s tariffs reverberate through the global economy, nervous eyes in the UK are watching for signs of domestic fallout. While Britain may have dodged the initial volley of US trade restrictions, policymakers fear it’s only a matter of time before the economic blast radius reaches their shores.
UK Far From Immune to Tariff Tremors
The UK chancellor, Rachel Reeves, has sought to downplay the immediate risks, noting that the “intellectual basis” for Trump’s tariffs stems from trade imbalances between the US and countries like China or the EU. As Reeves points out, the UK doesn’t have the same deficit dynamic with the US.
Yet this ignores the inextricable linkages of the modern global economy. As an extremely open and trade-dependent nation, Britain is acutely vulnerable to any slowdown in international commerce. The independent Office for Budget Responsibility has warned an all-out trade war could slash UK GDP by 5%.
Sterling and Inflation in the Crosshairs
Of more immediate concern are the potential currency and inflationary repercussions. Trump’s belligerent trade stance is widely expected to boost the safe-haven dollar at the expense of other currencies. A 10-15% decline in sterling, as modeled by some economists, would stoke import prices and reignite inflation just as it was starting to ebb.
If indeed this triggers a rewed gilts selloff, it would be much harder for raging commentators to portray it as a devastating personal verdict on the chancellor (however hard they try). Though the impact on the OBR’s models would be the same, dramatically compressing Reeves’ slim margin for meeting fiscal rules.
Heather Stewart, The Guardian
Borrowing Costs and Fiscal Rules in Jeopardy
More concerning still is the risk that tariff-fueled inflation prompts a spike in government borrowing costs, much as we saw in the gilt market volatility of early 2025. If US Treasury yields surge on revised inflation expectations, UK gilts would likely follow suit.
This would hugely complicate Reeves’ fiscal arithmetic. Rising debt servicing costs could put her on track to exceed the very fiscal guardrails she erected to establish Labour’s economic credibility. If budget cuts ensue as the Treasury has hinted, the government’s paramount objective of repairing public services post-austerity would look increasingly imperiled.
Uncharted Economic Waters Ahead
As Trump ponders his next tariff targets, a fraught few weeks loom for the global economy and Britain’s place within it. Though the UK may not be directly in the firing line yet, it’s already feeling the tremors from this seismic rupturing of the trading status quo.
While the precise vector of economic contagion remains unclear, this much seems certain: in an interconnected global market, no one is an island, not even Brexit Britain. For a government already performing a high-wire act between fiscal repair and economic rejuvenation, Trump’s trade tantrum introduces an unwelcome gust of uncertainty. Navigating these uncharted waters will test the mettle of policymakers on both sides of the Atlantic.
