A global trade war could leave Chancellor Rachel Reeves with no fiscal headroom, as former U.S. President Donald Trump’s proposed tariffs loom large. Reeves had announced in the Spring Statement that the Office for Budget Responsibility (OBR) estimated a fiscal buffer of £9.9 billion by 2029.
However, experts caution that if Trump follows through on his plan to impose a 20% tariff on imports from April 2, that safety net could disappear almost overnight.
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According to the OBR, if the UK and other nations retaliate, the country’s GDP could shrink by 0.6% this year and 1% next year, significantly impacting economic stability.
“This would almost entirely eliminate the headroom … as additional tariff revenue is more than offset by lower receipts from income, corporation, and consumption taxes,” the OBR warned in its analysis.
High-Stakes Trade Talks Underway
Amid growing concerns, UK Trade Secretary Jonathan Reynolds traveled to Washington last week in a bid to prevent the tariffs from taking effect. The UK government remains engaged in discussions with U.S. officials to secure an “economic deal” that would protect British businesses and consumers.
Reeves, addressing the Commons, underscored the importance of maintaining open trade relations. “We believe in free trade. We are a small, open trading economy, and we benefit from trade links around the world, including with our single biggest trading partner, the United States of America,” she said.
She further emphasized the government’s commitment to working with U.S. allies to ensure trade stability, stating, “It is right that we work with our allies in the United States to ensure that that free and open trade continues. That is in our national interest, and this government will always act in our national interest.”
Opposition Calls for Stronger Action
Despite ongoing talks, opposition leaders argue the government is unprepared for the economic fallout. Liberal Democrat Treasury spokesperson, Daisy Cooper, accused the government of “flying blind” into a potential trade war with the White House.
“Donald Trump is wreaking havoc on the world economy with his destructive tariffs,” Cooper said. “The chancellor said she would seek economic stability, but there is no economic stability to be found in relying on the whims of this chaotic White House.”
She urged the government to take decisive action rather than waiting for events to unfold. “Trump’s tariffs risk leaving the chancellor’s plans in tatters, wiping out what little growth was left after forecasts were slashed.
“But this government is flying blind instead of coming up with a proper plan on how to protect our economy from this threat.”
Cooper called for renewed negotiations with the EU to bolster economic resilience. “Simply sitting back and hoping is not a strategy. It is time for the government to start talks on a new trade deal with the EU that provides stability for businesses, boosts growth, and allows us to deal with Trump from a position of strength.”
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