A full-scale trade war under former U.S. President Donald Trump could significantly impact the UK economy, with GDP shrinking by up to 1% in the worst-case scenario, according to Britain’s Office for Budget Responsibility (OBR).
Chancellor Rachel Reeves warned on Wednesday that rising global economic uncertainty, unstable trade patterns, and increasing borrowing costs are creating insecurity at home. Economist David Miles from the OBR added that Trump’s proposed tariffs pose a serious threat to UK trade.
Trump is set to announce new reciprocal tariffs next week. While the UK is negotiating a trade deal to mitigate the impact, Britain’s economy could still suffer. The OBR estimates that if global trade disputes escalate, with 20% tariff increases between the U.S. and other major economies, UK GDP could decline by 1%. A general rise in U.S. import tariffs could also reduce UK growth by 0.6 percentage points in 2026.
If countries like China, the EU, and Canada retaliate, leading to a full-scale global trade war, Britain’s economy could face further declines. The OBR also warns that uncertainty over trade policies would dampen economic activity and drive temporary inflation.
The report highlights that frequent shifts in U.S. and global trade policies add to economic instability. Higher tariffs, it warns, reduce trade intensity, lower productivity, and weaken long-term GDP growth.
