Donald Trump’s trade war has helped push UK growth prospects this year down by a third even though Britain is far less exposed to the US president’s levies than its largest partners, as economists factor in weaker confidence and investment. 

UK GDP will grow just 0.8 per cent this year, according to an average of 10 forecasts made after Trump unveiled aggressive global tariffs on April 2, down from a consensus of 1.2 per cent expected in January, according to Financial Times research and Consensus Economics, a polling firm.

The hit will probably mean higher unemployment, driven by job losses centred on export-oriented manufacturing, analysts predicted. But the damage to demand is expected to spur faster Bank of England cuts to borrowing costs, alleviating some of the pressure on households.

“A large economic hit is guaranteed now, just because of the uncertainty that Donald Trump has created,” said Rob Wood, economist at the consultancy Pantheon Macroeconomics. “No one is quite sure how long tariffs will stay in place, how open Trump is to negotiation, what size retaliation will be.”

The US president applied a 10 per cent baseline tariff on the UK, which has a balanced trading relationship with America. Economies that export more goods to the US than they import were handed bigger tariffs depending on the size of the deficit. The EU was hit with 20 per cent, for example.

Trump’s regime did not include services exports, which make up the majority of the UK’s nearly £900bn of annual exports. Still, chancellor Rachel Reeves warned of “profound” challenges to the global economy as she took questions in the House of Commons on Tuesday. 

The global turmoil sparked by Trump’s tariffs will affect a UK economy that barely grew in the second half of last year and contracted slightly in January this year.

Some British companies have warned they have been weighed down by £25bn of taxes levied by Reeves last October and the latest increase to the minimum wage, both of which took effect this month.

The Office for Budget Responsibility, the official government forecaster, halved its growth forecast for 2025 last month to just 1 per cent, still rosier than the picture now seen after Trump’s April 2 tariff announcements.

In addition to the baseline 10 per cent tariff, the UK has also been hit by 25 per cent levies on automobile exports to the US, along with tariffs on steel.

The direct effect of the tariff rise on the UK looks “likely to be relatively small”, said Sandra Horsfield, economist at Investec but lower global demand will make the impact greater.

“Add to this a negative impact from uncertainty on investment and hiring, as well as the impact, provided it is sustained, of [sterling’s] strengthening, and the hit to GDP could be larger still,” she added.

Sanjay Raja, economist at Deutsche Bank, said the tariffs could result in 50,000 to 100,000 job losses in the short term, wiping out the 72,000 of jobs created in the three months to January.

Jack Meaning, economist at Barclays, cut his UK 2025 growth forecast to 0.5 per cent after the tariffs announcement from 1 per cent previously.

This is “a material downgrade,” he explained, “and a large part of that is coming from the uncertainty weighing on consumers’ decisions to spend and investors’ decisions to make investment.”

Some economists are expecting a smaller hit to growth, in part because they expect the UK exporters to benefit from the country’s relatively lower tariffs. Andrew Wishart, economist at the bank Berenberg, trimmed his UK 2025 growth forecast to 0.9 per cent from 1 per cent. The UK is “well placed to weather the tariff shock,” he argued. 

In the short-term, there may be a silver lining for British consumers in spite of the hit to growth. Most UK workers are in the country’s dominant services sector, where wage growth has remained relatively high even as inflation has come down over the past 18 months.

Brent crude oil fell to a four-year low on Monday before edging higher on Tuesday, a decline that could further ease inflationary pressures. Swap rates, which determine mortgage rates, have also come down and if sustained, they could help household finances and support house prices. 

Traders are pricing in three rate reductions by the Bank of England this year, with the next expected to come in the May meeting, which will help further ease pressure on the economy. In addition, a flood of discounted consumer products are expected to arrive in Europe as China struggles to sell into the US, analysts said.

“In the short run, we could actually see deflation in the UK as international prices will fall because goods which were due for the American market now will flood other countries,” said Eric Golson, associate professor of economics at the University of Surrey. 

“However, in the long run, we will see supply side inflation as the global value chains which have delivered significant growth and lower prices for the last 25 years will fall apart,” he cautioned.