The 10% US tariffs on UK goods, while not as painful as the expected 20%, will redraw the Office for Budget Responsibility’s (OBR) growth forecasts for the UK, forcing the Chancellor to rethink her approach as the government pushes to increase growth. 

In its Spring Statement forecasts, the OBR predicted a hit to UK GDP of between 0.3% and 0.6% if the UK became subject to US tariffs. While that was calculated on a potential 20% rate, the hit to GDP will still be significant enough to eliminate the Chancellor’s fiscal headroom, raising the possibility of more government cuts or tax increases in the Autumn. 

ICAEW Chief Executive Alan Vallance says that anything that injects added cost, complexity and uncertainty into the global economic trading system is never good for growth – and that includes tariffs. “The announcement by the US president will probably have wiped out the Chancellor’s hopes for an uplift to UK growth this year and thrown her fiscal plans into jeopardy.”

The government has said that it will take a calm and measured approach to its response to the tariffs, which Vallance welcomes. “It would be wrong for the government to have a knee-jerk, tit-for-tat response to last night’s news. Efforts to take tension out of the situation and calm the global trade system should be the priority of the UK government, and it appears that Keir Starmer and business secretary Jonathan Reynolds have worked to achieve that."

The UK government is putting its efforts into securing a trade deal with the US, largely focused on technology, as a route towards eventually reducing tariffs. This is a medium- to long-term solution, however.

The automotive industry will be hit particularly hard by the US tariff regime, with 25% on cars imported into the US, matching those imposed on steel and aluminium imports. However, one of the UK’s biggest export markets – its service sector – has been untouched by tariffs. 

“The US, just like the UK, has a trade surplus on services, instead of a deficit like it does on goods,” says Vallance. “Given that the UK is primarily a services economy, this rapidly changing trading environment reinforces the need for a greater focus on supporting this key export.”