UK growth forecasts nearly HALVED for next year as hopes of US trade deal to avoid Trump's tariffs are thrown into doubt

Daily Mail​

28-04-2025

Rachel Reeves has suffered another blow with more UK economic forecasts downgraded - as hopes of a US trade deal were thrown into doubt.
The EY Item Club has slashed predictions for this year and next amid alarm at the impact of Donald Trump 's tariffs.
It now expects GDP to grow 0.8 per cent in 2025, down from the 1 per cent estimated in February.
For 2026 the anticipated expansion has been trimmed from 1.6 per cent to 0.9 per cent - before rebounding to 1.5 per cent in 2027.
The gloomy picture emerged as ministers cautioned that efforts to strike a trade pact with America might not be successful.
Rachel Reeves had been taking an optimistic tone about the prospects of an agreement to ease levies on UK car and steel exports, as well as head off the threat of the pharma industry being targeted.
However, Cabinet Office minister was notably more downbeat in interviews yesterday.
The EY Item Club forecasts will fuel speculation that Ms Reeves will have to increase taxes again or curb spending at the Budget this Autumn.
Borrowing has come in above expectations for last year, and review bodies have recommended higher public sector pay settlements than the government offered.
Mr Trump unveiled sweeping changes to US trade policy on so-called 'Liberation Day', introducing a 'baseline' 10 per cent tariff on imports from most countries around the world.
About 16 per cent of UK goods exports go to the US, meaning the new tariff rate will directly impact UK growth by squashing demand for products, EY said.
But the bigger hit is set to come from the indirect impact of new policy on a weaker global economic backdrop and spiralling levels of uncertainty.
This is predicted to weigh on consumers who remain in a 'cautious mood' following the cost-of-living crisis, and will likely continue putting big spending decisions on hold.
Businesses are also expected to limit the amount they are investing over the next two years as a result.
The UK is less exposed than other countries but certain sectors such as car manufacturing and pharmaceuticals are particularly 'vulnerable', according to EY's report.
This is because they trade heavily with the US or, like carmakers, are facing a higher tariff rate on exports.
At the same time, EY said the Bank of England is likely to stick to its gradual approach to cutting interest rates, which are predicted to be reduced to 3.75 per cent by the end of the year, from the current 4.5 per cent level.
Anna Anthony, regional managing partner for EY UK & Ireland, said: 'There had been signs that the economy was exceeding expectations in the opening months of 2025, but a combination of global trade disruption, uncertainty, and persistent inflation look likely to postpone the UK's return to more moderate levels of growth.
'Businesses thrive on certainty, so it's unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term.
'While conditions remain challenging, there are still some grounds for optimism.
'The services-led UK economy is projected to see continued growth this year and gradual interest rate cuts should slowly bolster business and household spending.
'Over time, the unpredictable global landscape may offer opportunities for the UK to position itself as a stable, attractive destination for investment.'